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Daily Mail (London): ANALYSIS: Clouds loom over Shell’s golden era

By Sam Fleming,

Royal Dutch Shell laid claim to the title of big oil’s comeback kid with the biggest profit in British history, but its golden era is likely to be all too brief.

The shares rose 32p to 1,746p on the back of a 12pc jump in annual profit to GBP13bn.

But the bumper numbers were overshadowed after chief executive Jeroen van der Veer slashed production targets because of setbacks in Russia and Nigeria.

Further clouding the outlook, questions re-emerged over the rate at which Shell is replacing the oil it pumps from the ground.

The firm, which is still recovering from a 2004 accounts scandal, said it replaced 150pc of its reserves last year, dramatically up from 78pc in 2005.

But that controversially included a huge gas-to-liquids scheme in Qatar for the first time, as well as Shell’s Canadian oil sands project. Both require high oil prices to be viable.

Shell’s heavy exposure to such projects leaves it unusually reliant on sky-high crude prices.

Merrill Lynch said Shell will need an oil price of around $55 a barrel to cover its dividend and fund new investment — well above BP’s $46. US rival Exxon, which said profits surged to GBP20.1bn, only needs oil prices of $40 a barrel to cover its costs.

Shell warned that output will grow a mere 1-2pc for the rest of the decade.

That is partly because of rebel attacks in Nigeria, where it is losing 191,000 barrels a day of production.

The outlook will be further damaged by the sale of half Shell’s stake in the huge Sakhalin 2 project to Russia’s Gazprom, which will slice 400m barrels off reserves.

The first- quarter dividend is expected to be 36 cents a share, up 14pc. BP’s Tony Hayward isn’t wasting any time. He appointed Andy Inglis replace him as head of exploration and production with immediate effect, allowing Hayward-to focus on taking over from boss Lord Browne.

Separately, BP sold off its last UK refinery, Coryton in Essex, for GBP714.6m to Switzerland’s Petroplus.

It also dealt a blow to British academia by choosing a group of US universities for its flagship research project into green fuels.

Published: Feb 02, 2007

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