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Crude Price Slump May Help Shell Gain Access to More Reserves

By Fred Pals and Eduard Gismatullin

March 11 (Bloomberg) — Royal Dutch Shell Plc and other international oil companies may get greater access to reserves as resource-rich nations seek capital and technology for fields that have become harder to develop since crude prices slumped.

Shell, Europe’s biggest oil company, and rivals BP Plc and Exxon Mobil Corp., struggled to increase reserves when oil prices were at a record. Nations with hydrocarbon deposits, including Russia and Venezuela, renegotiated contracts in favor of national oil companies to keep a larger slice of their energy wealth for themselves. Crude prices have fallen about $100 a barrel since reaching an all-time high in July.

“Oil prices are lower, and may continue to stay low for a period, and that will ease access to reserves,” Shell Chief Executive Officer Jeroen van der Veer told Bloomberg News in an interview in London on March 4. “It is not happening now, but it will happen.”

Shell was forced to cede a majority stake in Russia’s Sakhalin-2 oil and gas project in 2007. OAO Gazprom, the state- run gas exporter, took control after regulators threatened to close the $22 billion project on environmental grounds.

“We have learned how to work in Russia, we are quite keen to invest there,” van der Veer said.

Shell and its rivals will seek stakes in hydrocarbon projects planned by cash-strapped national oil companies, Nansen Saleri, chief executive officer of advisory firm Quantum Reservoir Impact in Houston, said on March 3. Assets in the former Soviet Union “are very attractive if you have the capital and the knowledge,” he said.

Oil Services

Cost deflation will make it easier for Shell to negotiate contracts with oil service companies and suppliers, according to van der Veer. It typically takes about “12 to 18 months” for the drop in prices to take hold, he said.

Shell made at least eight acquisitions last year, including its C$5.27 billion ($4.1 billion) purchase of Canadian natural- gas producer Duvernay Oil Corp. The company will spend between $31 billion and $32 billion this year on investment, of which van der Veer said “not a lot” would be earmarked for Russia, because projects such as the country’s first liquefied natural gas plant at Sakhalin have already started up.

Van der Veer will retire in July this year and will be succeeded by Shell’s Chief Financial Officer Peter Voser. Van der Veer, who took over as CEO in 2004 to restore confidence following a reserves probe, will join the supervisory board ofRoyal Philips Electronics NV in July and become vice chairman of Unilever Plc, the world’s second-largest consumer-products company.

Mars Platform

Shell posted its first quarterly loss in a decade in the last three months of 2008 on the back of the oil-price decline, and warned that industry conditions remain “challenging.”

The company postponed investment decisions on upgrading its deepwater Mars platform in the Gulf of Mexico and developing the Pierce field in the U.K.’s North Sea in anticipation of lower costs. In October, it delayed a decision on the second-phase expansion of its Athabasca oil-sands project in Canada.

To contact the reporter on this story: Fred Pals in Amsterdam

Last Updated: March 10, 2009 20:00 EDT

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