Royal Dutch Shell Group .com Nigerian output still on hold


Shell also reports Russian costs rising

Bloomberg News

April 2, 2004, 11:41PM


Royal Dutch/Shell Group said Friday that output from a $2.7 billion Nigerian development will be delayed for a second time and costs for a $10 billion natural gas project in Russia are increasing.


The Shell-led Bonga development in the deep waters off West Africa should pump oil in 2005, more than a year behind schedule. A Shell-run Sakhalin project in Russia's Far East is incurring extra costs after "unexpected events," Shell spokeswoman Bianca Ruakere said in London. She did not elaborate.


Shell is under increasing pressure after a Jan. 9 disclosure of overbooking 3.9 billion barrels of oil and gas reserves, which forced out Chairman Philip Watts and led to Justice Department and Securities and Exchange Commission investigations. Shell needs Russia, the world's largest holder of natural gas, and Nigeria, Africa's top oil producer, to boost reserves and output.


"It's another point in Shell's problems; it's been very hard for them to find new reserves," said Katja Blanke, an analyst at Landesbank Rheinland-Pfalz in Mainz, Germany. "Shell is not so good at exploration themselves. Perhaps it's cheaper to buy reserves."


Shell holds 55 percent of the Bonga field and manages the project on behalf of the state oil company and partners Exxon Mobil, Eni and Total. Walter van de Vijver, the head of Shell's oil and gas division who was dismissed with Watts recently, said on Feb. 5 the company had expected the field to start up at the end of this year. In 2001, Shell had forecast Bonga would be on line in 2003.


"We expect it to be onstream next year," Shell spokesman Simon Buerk said. "We had some challenges to deal with. We have had to absorb additional offshore work that has delayed the pro-ject."


Nigeria represented a third of Shell's 3.9 billion barrels of overstated reserves in the Jan. 9 announcement. The company said that figure hasn't changed.


In Russia, additional costs at the Sakhalin Island development off the Pacific Coast means the budget for the project may rise. Japan's Mitsui & Co. holds 25 percent of the project, and Mitsubishi owns 20 percent.


Shell's Sakhalin II natural gas project will cost $2 billion more than management told analysts in February, the London-based Times reported, citing unidentified people close to the company. Ruakere wouldn't comment on the extent of any overruns.

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