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Gulf-Times (Qatar): Shell picked over BP because of ‘unconventional’ projects

Published: Sunday, 4 March, 2007, 10:02 AM Doha Time
LONDON: Royal Dutch Shell Plc, Europe’s largest oil company by market value, offers a better investment opportunity than BP Plc through 2020 because Shell has more “unconventional” projects, Sanford C Bernstein analysts said.

Shell’s portfolio is less contingent on production decline rates at conventional oil and gas fields because it has a higher proportion of liquefied natural gas, gas-to-liquids, oil sands and hard-to-access “tight” gas projects, which tend to be long- lasting, Bernstein analysts Neil McMahon and Oswald Clint said.

“To answer the classic dilemma ‘Shell or BP?’ we prefer Shell at this time due to higher earnings power, more defensive characteristics and less risk of a cashflow squeeze should oil prices fall,” the Bernstein analysts in a research report published on Friday. They rate both stocks “market-perform.” Delays and disruptions at major oil and gas projects led output to decline 1% last year at The Hague-based Shell, 2.2% at London-based BP and 5% at Total SA, Europe’s third largest company. At strategy presentations last month, Shell and BP both slashed forecasts for production growth over the next few years.

Bernstein expects production levels at Shell and BP to converge toward the end of the next decade, with both being “4mn barrel-a-day” companies in 2020 based on their current roster of projects.

Both will expand production by about 2% a year over the next four years, while in the 2010 to 2015 period, Shell’s rate will rise to 4% compared with 2 to 3% at BP.
Later, during 2015 to 2020, Shell’s production will decline 2% a year, versus a 3% decline at BP. The Bernstein analysts modeled growth rates using only projects and discoveries already announced by the two companies.

Among the broader group of integrated oil companies, the Bernstein analysts favour Total and Chevron Corp the most, which they rate “out-perform.” – Bloomberg 

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