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Shell seeks to reassure analysts on major projects

Bloomberg News

Nov. 20, 2009, 7:42AM

Royal Dutch Shell Plc will aim to reassure investors on the costs and profitability of its Pearl gas-to-liquids and QatarGas projects during a field trip for analysts.

Shell’s Pearl GTL joint venture will process 320,000 barrels of oil equivalent a day into 140,000 barrels of gas-to- liquids products and 120,000 barrels of ethane. The venture required investment of as much as $18 billion. Shell has a 30 percent stake in the QatarGas4 liquefied natural gas project, which will have peak production of 280,000 barrels of oil equivalent a day. Shell is hosting a two-day field trip with analysts starting Nov. 23.

Record investment in 2009 let Shell Chief Executive Officer Peter Voser expand programs including an oil-sands venture in Canada and the Sakhalin II project in Russia’s Far East. Expectations of production coming on stream in 2011 from its Qatari projects may help revive Shell’s London-listed shares, which have underperformed rivals including BP Plc this year.

“With Pearl GTL the most significant consumer of capital and contributor to growth, cash recovery and valuation, a perception that the asset is on-time, on-budget and can deliver the expected cash-flow accretion is key in our view,” Mark Bloomfield, a London-based analyst at Citigroup Inc., said in a note Nov. 10.

Shell spokeswoman Kirsten Smart declined to comment about the field trip when contacted today by phone.

Shell will add 1 million barrels a day to capacity by the end of 2012, representing an average annual growth rate for oil and gas output of 2 percent to 3 percent between 2009 and 2012. That compares with growth of 1 percent to 2 percent at BP. Both estimates take into account the impact of natural field depletion.

Production at Pearl is expected to start in 2011 with a ramp-up to full capacity that may take around 12 months. The project is being carried out under a development and production- sharing agreement, the terms of which have not been made public.

“Investor sentiment could improve now that the turnaround story is gaining traction, especially if Shell can lessen perception of execution risks typically associated with these massive projects,” Bertrand Hodee, a Paris-based analyst at Kepler Capital Markets, said in a note Nov. 17. “What numbers tell us about Pearl GTL is that it is a mighty cash machine once in production,” Hodee, who has a “buy” rating on Shell, said.

Oil companies are slashing costs, cutting jobs and holding back on some new investments to halt a slide in earnings, even as they seek to fund renewable energy projects. Exxon Mobil Corp. cut its capital-spending estimate for 2009 by 10 percent as third-quarter profits at the Irving-based explorer and Shell hit their lowest level in six years.

Pearl may become the biggest cash contributor to Shell’s cash flow by 2013 with $3.4 billion a year, or 9 percent of the total, assuming an oil price of $70 a barrel, according to Hodee.


Shell posted a 62 percent decline in net income to $3.25 billion and Voser said the outlook “remains very uncertain” given forecasts that demand for crude will fall the most this year since 1980. Shell is cutting 5,000 jobs, equivalent to about 5 percent of its workforce, and has reduced operating costs by about $1 billion.

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