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THE WALL STREET JOURNAL: Shell Strikes Downstream Alliance With Kuwait: A Shell spokeswoman said the two partners will explore future opportunities within the whole downstream value chain, from refining crude to retail fuel sales. ( 22 March 05




March 22, 2005


LONDON -- Royal Dutch/Shell Group (RD, SC) Tuesday said it is joining forces with the international arm of Kuwait Petroleum Corp. (KPT.YY) to make investments in the downstream sector, a move which analysts say could help it access the Emirate's oil riches. In a statement, Shell said it had signed a memorandum of understanding with Kuwait Petroleum International Ltd., or KPI, the international refining and marketing arm of state-owned Kuwait Petroleum, for future joint investments.


A Shell spokeswoman said the two partners will explore future opportunities within the whole downstream value chain, from refining crude to retail fuel sales.


She added that the alliance covers Europe - where both companies already operate within the downstream sector - as well as India and China, where strong growth is expected. No specific projects are on the table at this time, she added.


The deal comes as part of Kuwait's strategy to tap partners for strategic alliances, said industry analyst and former KPC executive Kamel Al-Harami.


KPC has partnered with Dow Chemical Co. (DOW) on the petrochemicals side. Al-Harami noted it also pulled out of Thailand after failing to find a partner for refineries there.


Earlier this month, Shell 's U.K. rival BP PLC (BP.LN) signed a similar agreement with KPI focusing on the high-growth market of China and elsewhere in Asia.


"(KPI is) looking for strategic partners, whether its BP or Shell ," Al-Harami said. The deal comes as rival Saudi Arabian Oil Co. (SOI.YY) moves ahead on joint-venture plans with Exxon Mobil Corp. (XOM) for a refinery in China and talks for refineries in India.


The Shell-KPI alliance will see KPI supply oil to any future refining joint projects, while Shell will bring its technology experience and scale as the independent oil company with the largest downstream business, the Shell spokeswoman said. KPI and Shell will study synergies between their respective businesses in Europe, where the Kuwaiti company is involved in refining and retail activities in Italy and the Netherlands on top of the pan-European presence of its Anglo-Dutch partner. But the agreement is especially critical for the Anglo-Dutch oil major which "is maneuvering to get access fields" in the Gulf state as it tries to rebuild its dwindling reserves, one unnamed London analyst said.


Last month, Shell said its reserves replacement ratio -a key indicator of its future growth- fell to 15%-25% including year-end pricing impact and divestments in 2004, against 98% in 2003.


"We definitely want to build our position in Kuwait, but I am not sure this is linked with the downstream deal," the Shell spokeswoman said.


She added that Shell already has a minority stake in a concession in Kuwait's Northern Field led by ExxonMobil and wants to expand to other fields.


Kuwait controls 8% of the world's proven oil reserves, or 96.5 billion barrels, and produces 2.5 million barrels a day of heavy crude.


"The Gulf's reserves are largely untapped and the region needs large investments which Shell can provide," the analyst said.


But it is unclear whether Shell will be able to realize its Kuwaiti upstream ambitions. The Emirates' Parliament is currently debating the awarding of new oil concessions to foreign companies.


At 1413 GMT, Shell shares were trading down 0.2% at 485 pence in line with the wider market.


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-By Benoit Faucon and Shai Oster, Dow Jones Newswires; 44-20-7842-9266;


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