Fri, Feb 03, 2012 - Page 10 News List

Shell eyes massive growth, but at big cost for next year

Reuters, LONDON

Royal Dutch Shell said it was targeting aggressive growth in the coming years, with the start-up of big new projects and higher investments set to drive a 50 percent rise in cashflow and a 25 percent rise in oil and gas production.

However, weaker-than-expected results for the fourth quarter, partly because of dismal industry-wide refining margins, and an anemic dividend hike, raised the question of whether Shell was simply running faster to stand still, with investments offering ever-dwindling returns.

Shell’s London-listed A shares traded down 2.2 percent yesterday, lagging a 0.8 percent drop in the STOXX Europe 600 Oil and Gas index.

Hague-based Shell said it was eying a return to strong production growth in the coming years, after nearly a decade. Apart from a 5 percent rise in 2010, the group’s production has fallen every year since 2002.

“Oil and gas production should average some 4 million boe/d [barrels of oil equivalent per day] in 2017-18,” the company said in a statement.

Production averaged 3.215 million boe/d last year, a 3 percent drop on 2010.

This growth will be generated by higher capital investment expenditure, which will rise to between US$32 billion and US$33 billion this year from US$31.5 billion last year, Shell said.

Analysts had previously predicted that CAPEX would fall, as Shell completed the big new projects such as the pearl gas-to-liquids plant in Qatar, which will push output higher.

The high capital being invested is one reason that Shell’s return on capital employed failed to sparkle, at 15.9 percent, compared with levels above 20 percent a few years back when oil prices were considerably lower.

Similarly, in spite of a record average Brent crude price of US$111 a barrel last year, the full year current cost of supply (CCS) net income of US$28.6 billion still lagged the earnings high Shell reported in 2008, of US$31.4 billion.

Shell said its fourth quarter CCS net income was US$6.46 billion, helped by one-off gains from the sale of assets.

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