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The Times: Shell makes record $25bn but plans to reduce share buybacks

February 02, 2007
Carl Mortished: International Business Editor

14 per cent rise in dividend planned
Company trims growth forecasts
 
Royal Dutch Shell yesterday called into question the value of share buybacks and said that it will reduce its own repurchases despite reporting record profits of $25 billion (£12.7 billion). 
 
The company, which last year spent $8billion buying back its shares, instead promised a 14 per cent increase in the first-quarter dividend and will raise spending on projects by up to $2 billion.

Shell also warned of a deteriorating oil production outlook until 2010. Worsening violence in Nigeria is forcing Shell to trim back its growth forecasts after a year in which output was roughly flat at 3.5 million barrels per day.

Later yesterday, ExxonMobil trumped Shell’s record with a profit of $39 billion, the largest so far recorded by an American company.

Jeroen van der Veer, Shell’s chief executive, said that oil production would remain unchanged in the current year and would rise by between 1 per cent and 2 per cent until 2010, after which signficant growth would resume.

Violence and kidnappings in the Delta region have caused Shell to lose  190,000 barrels per day of its 300,000 bpd of onshore production.

In its strategy statement for the coming year, Shell said that it would raise spending from $21 billion in 2006 to around $22 billion to $23 billion in 2007, including the anticipated investment in buying out Shell Canada’s minority interest.

Peter Voser, Shell’s finance director, hinted that less money will go into share buybacks. Shell spent $8 billion in share repurchases last year, but in future, shareholders can expect more cash in ordinary dividends. “In my opinion, buybacks are not delivering the share price appreciation that some people had hoped for,” Mr Voser said. “If some others spend more money on [buybacks], I am pleased with that.”

Shell shares gained 2 per cent yesterday in response to a better than expected fourth-quarter profits rise of 11 per cent to $6 billion. The company also signalled that it had replaced its reserves by 150 per cent with 2 billion additional barrels. Most of the gain represents Canadian oil sands and the Pearl gas-to-liquids project in Qatar. The US Securities and Exchange Commission, America’s stock market regulator, still excludes oil sands from statements of proven reserves and on that basis Shell’s reserve addition was between 1.6 billion and 1.7 billion barrels.

The partial sale of Shell’s Sakhalin-2 gas project in Russia to Gazprom will reduce reserves by 400 million barrels, but will not take effect until December 2007. Mr Voser said that he expected the loss of Sakhalin reserves to be compensated by addition of reserves from the purchase of the minority interest in Shell Canada.

Shell admitted it faces a tough decision in Iran where it has agreed the first stage of a vast gas project.

Mr van der Veer acknowledged the risk of US sanctions if it goes ahead. “We have here quite a dilemma,” he said. “They are the No 2 in oil and gas reserves in the world. They will be a very important exporter.” 
 
http://business.timesonline.co.uk/article/0,,9072-2580217,00.html

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