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BLOOMBERG: Shell Shifts Europe Oil Exploration to Northern, Deeper Waters: “Royal Dutch/Shell Group, the world's third-largest oil company, said it's looking to the North Atlantic Margin for its next big European oil and gas finds as it seeks to replace older, flagging North Sea reserves.” ( 15 Nov 04


Nov. 15 (Bloomberg) -- Royal Dutch/Shell Group, the world's third-largest oil company, said it's looking to the North Atlantic Margin for its next big European oil and gas finds as it seeks to replace older, flagging North Sea reserves.


The margin includes the coast off northern Norway and deep waters west of the Shetland Islands, where it secured new exploration blocks in June and September. In the North Sea, where undiscovered reserves are smaller, Shell intends to pursue new projects that take advantage of its existing pipelines and platforms, particularly where they involve natural gas.


``The idea that the North Sea is old and dying and all the majors want to leave and everybody wants to turn off the lights is nonsense,'' said Tom Botts, the head of Shell's European exploration and production business. ``There's at least as much to play for in the U.K. as has already been produced.''


Chairman Jeroen van der Veer, 57, who will become chief executive when Shell combines its U.K. and Netherlands parent companies next year, has expanded global exploration spending after Shell disappointed investors by writing down its oil and gas reserves estimates four times this year.


Shell will spend $1.5 billion a year in 2005 and 2006 on exploration, with half the drilling costs spent on hunting ``big cats,'' or prospects greater than 100 million barrels. Of the 19 big cats targeted for 2005, two are in Norway, one in the U.K. and one in Denmark. Shell produces about a quarter of the North Sea's oil and gas, through interests in some 50 fields.




Overall, Shell is putting more effort into exploration in places such as Nigeria and the Gulf of Mexico, and its liquefied natural gas project in Russia. It has sold some North Sea fields, including fields it inherited through its 2002 acquisition of Enterprise Oil Plc.


In Europe, ``Shell is looking at the frontier areas for bigger fields: mid-Norway and west of Shetlands,'' Rhodri Thomas, the head European analyst at oil consultants Wood Mackenzie Ltd. said in a telephone interview from Edinburgh, Scotland. ``They are active in tie-back fields in the North Sea, mostly in tying back fields around existing infrastructure.''


North Sea discoveries come ``in smaller packages,'' Botts said at a Nov. 11 briefing in St. Fergus, Scotland. ``It is becoming more technically difficult and challenging and we know the U.K. continental shelf has a relatively high cost compared with other basins around the world.''


The company was still the second-largest driller of exploration wells in the North Sea last year, Botts said after an opening ceremony for Shell's new Goldeneye gas field, which will supply 3 percent of U.K. gas demand.




Wood Mackenzie analysts estimate Shell ventures drilled 16 exploration wells in Europe last year, including so-called side- track wells, compared with nine so far this year.


The U.K. and Norway together provided 497,000 barrels a day, or 21 percent, of Shell's oil production in 2003, the same as its Middle East operations. Shell pumped 414,000 barrels a day in the U.S., its biggest producing country.


``There's a realignment of investment,'' Tom Cross, 43, the chief executive of Dana Petroleum Plc, an independent U.K. producer, said in an interview from Aberdeen. ``There has been a steady stream of divestments from BP and Shell, which are starting from such a huge portfolio in the North Sea.''


Dana and Venture Production Plc won government approval seven weeks ago to develop the Gadwall in the central U.K. North Sea, a 6.6 million-barrel oil field they bought from Shell and Exxon Mobil Corp. last year. Shell drilled the field in 1996.


Biggest Seller


During the past year Shell was the biggest seller of oil and gas field assets in the U.K., and the biggest overall asset trader, selling 15 and buying two, according to Shell data. Eni SpA, Europe's fourth-largest oil producer, made 12 sales.


Talisman Energy Inc., an independent Canadian producer run by former BP exploration manager James Buckee, was the biggest buyer in the U.K., with seven purchases, followed by other small companies Perenco U.K., Tullow Oil Plc and Venture.


``The progression of assets now is to put them in the hands of the most suitable size of companies,'' Dana's Cross said. ``If the oil price fell, the transfer would be quicker.''


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Stephen Voss in London


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