Shell sees output stagnant 

until 2009 despite more capex

London (Platts)--22Sep2004

Troubled oil major Shell said Wednesday it may not see any increase in oil and
gas production until after 2009 despite a further boost to its capital
spending budget to help restore confidence in its under performing upstream
portfolio. Outlining his strategic plans for the company for the first time
since taking over the company in March, chairman Jeroen van der Veer said
capital spending would average $15-bil/yr over the 2004-2006 period, with some
$10-bil/yr earmarked for upstream oil investment and another $1.5-mil on
upstream gas and power projects. But despite the extra spending, Shell said it
sees oil and gas production between 3.8-4-mil boe/d in 2009 compared with
3.9-mil boe/d production in 2003. Announcing its second quarter results in
July, Shell had already cut its production targets for 2005 and 2006 by 7% to
reflect planned divestments of under-performing assets and delays to key
projects. Three months earlier, Shell said it would spend an extra $2-bil this
year to boost short-term payback projects following the reserves debacle.

The new guidance disappointed investors who had been hoping for news of
increased share buybacks and new, more upbeat performance and financial
targets. Shell's shares slumped by over 3% in London after the strategy
announcement. "The lack of share buy-back now indicates that Shell may be less
cash generative than we thought," Credit Suisse First Boston said in a note.
"We see this as disappointing and confirming the relatively weak free cash
generation at a sub $30/bbl Brent oil price." Beyond 2009, Shell gave an
"aspirational" production target of 4.5-5-mil boe/d for 2014. "Longer term the
uncertainty is wider," Shell's new upstream head, Malcolm Brinded told
reporters in London referring to the 10-year production scenario. "Much
depends on oil prices and the cash becoming available for reinvestment and our
exploration results. "I want to stress that this is an aspiration, its not
cast in stone. We'll only get this only if the opportunities are good enough
to add value."

Shell had previously maintained a target of growing upstream production by
3%/year but dropped the indicator as a key performance measure after it missed
its 2003 target of 4.1-mil bbl of oil equivalent/day. Following three
successive downward revisions to proven reserve figures this year, the group's
reserve replacement stands at 66% over the last five years, way below other
international majors which normally more than replaces annual production. The
group's performance on reserve replacement is now the lowest for any
integrated major, bar Repsol YPF. Shell is now desperate to recover investor
confidence in its upstream portfolio by adding to its reserves and production
levels as fast as possible. Brinded, confirmed that average reserve
replacement will exceed 100% over the next four years but dropped a previous
target which foresaw the group would re-book at least 85% of the 4.47-bil boe
of proven reserves cut from Shell's 2002 books in the next ten years. Instead,
Brinded said Shell now expects half of the restated reserves to be re-booked
by 2009.

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