UpstreamOnline: Shell reserves on a steady course

Company bucks predictions of a fall and sticks to investment plan

CHRISTOPHER HOPSON, London

Shell said its oil and gas reserves held stable in 2007 despite expectations of a drop, but told investors they may have to wait until 2010 to see production expand.

The supermajor said it had more than 50 large projects in the pipeline that would deliver stronger cash flows in the decades to come.

However, it declined to give production guidance for the year, saying only that output will increase after 2010.

The world’s second-largest non-government-controlled oil company by market value put total net reserves at 11.92 billion barrels of oil equivalent at the end of 2007, down slightly from 11.94 billion boe at the end of 2006.

Shell booked additional reserves in Qatar, where it is building large liquefied natural gas and gas-to-liquids facilities, at the much-delayed Kashagan project in Kazakhstan, and in the US, Australia and Norway.

The company pointed out that its loss of 402 million boe from the sale of half its stake in the $20 billion Sakhalin 2 project in the Russian far east was partly offset by a 322 million boe gain from Canadian oil sands reserves additions.

“There’s cause for more optimism… the reserves seem like they’re there,” said oil analyst Jason Kenney at financial group ING.

Shell chief executive Jeroen van der Veer said the company was investing in projects that will underpin the group in the first half of this century, a time when he thinks conventional oil and gas production will be insufficient to meet demand.

However, Shell’s disappointing performance compared with its competitors was highlighted in a leaked memo from Van der Veer to staff this month.

It said Shell came in fourth out of five oil majors in terms of total shareholder return over the last three years, which measures the increase in share price and dividend payments.

The leaked memo said Shell lagged behind ExxonMobil, Chevron and Total, though it was ahead of BP. Van der Veer called the outcome a “disappointment”, though he noted Shell’s “strong” business results over the last three years.

Some analysts feared the sale of part of its stake in Sakhalin 2, in the wake of pressure from Russian authorities, and writedowns in Nigeria would push reserves lower but new finds and acquisitions managed to make up for these losses.

Investors have been concerned about Shell’s ability to add reserves since 2004, when it said it had exaggerated its reserves by about a third, leading to the exit of a number of its top executives.

Oil prices of about $100 per barrel have made it hard for oil companies to add reserves as resource-holding nations, flush with cash, increasingly keep their best oil and gas fields for their state oil companies. Shell’s larger rival, ExxonMobil, and UK supermajor BP, also only managed to hold reserves stable in 2007.

France’s Total had a 6% drop, while Chevron had a 7% fall.
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20 March 2008 00:01 GMT  | last updated: 20 March 2008 00:01 GMT