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Shell Investment Pays Off With Output Growth as BP Scales Back


By Eduard Gismatullin – Feb 2, 2011 12:01 AM GMT+0000 

Royal Dutch Shell Plc may become Europe’s largest oil and gas producer as a $100 billion spending program starts to pay off and closest rival BP Plc scales back.

This year, Shell’s Pearl gas-to-liquids and Qatargas 4 liquefied natural gas developments in the Middle East are scheduled to come on stream, following investment of about $21 billion, the latest in a line of projects from Brazil to Canada that have reversed a seven-year decline in production. At the same time, BP forecasts output will drop 11 percent this year as it sells more assets to pay for the Gulf of Mexico oil spill.

“Within the major oil integrated group, Shell will grow the fastest in terms of underlying production and cash flow,” said Dimitri Willems, who helps manage about $1.4 billion at Kempen Capital Management in Amsterdam. “They are well on track to reach the projected growth targets.”

The Hague-based producer plans to spend more than $100 billion by 2014 and has been assessing more than 35 projects to maintain production growth until 2020. It expects output to rise by 11 percent to 3.5 million barrels of oil equivalent a day between 2009 and 2012. BP said yesterday output will average 3.4 million barrels a day this year.

Shell estimates cash flow will grow 80 percent in the three years to 2012 with oil averaging $80 a barrel.

“Finally, Shell is beginning to fire all cylinders,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. “We haven’t seen Shell that cash generative for quite some time.”

BP, Exxon

Shell’s fourth-quarter earnings excluding one-time items and gains or losses from inventories are expected to rise to $4.8 billion from $2.8 billion a year earlier, according to a mean estimate of 12 analysts surveyed by Bloomberg.

BP yesterday posted adjusted profit of $4.4 billion, missing analysts’ expectations of $5 billion. Exxon Mobil Corp., the world’s largest company, this week reported its highest quarterly profit in more than two years of $9.25 billion.

Brent oil rose about 22 percent last year and averaged $80.33 a barrel. Shell shares rose almost 14 percent in the same time, outperforming a 0.5 gain in the 34-member Europe Stoxx 600 Oil & Gas Index.

Of 37 analysts who cover Shell, 28 recommend buying the shares, while eight have “hold’ ratings and one advises investors to sell the stock.

Shell’s exploration and production business will “produce quite a good set of figures,” said Colin Morton, who helps manage around $1.5 billion at Leeds, England-based Rensburg Fund Management Ltd.

Iraq Projects

Shell is continuing with project construction in Iraq and North America to maintain growth. It’s cooperating with OAO Gazprom, Russia’s state-owned natural gas monopoly, and PetroChina Co Ltd., leading European rivals in securing alliances with state-owned explorers, according to Sanford C. Bernstein & Co.

In October, Shell said it expected to book losses in the fourth quarter arising from disruptions in the Gulf of Mexico after the worst oil spill in U.S. history. Production from the region, which accounts for about a third of Shell’s total production in the Americas, will be 40,000 barrels less than previously expected this year.

To contact the reporter on this story: Eduard Gismatullin in London at

To contact the editor responsible for this story: Will Kennedy at

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