Shell to divest 15% of its refining capacity

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Mar. 16 -- Royal Dutch Shell PLC forecast its production will climb 11% during 2009-12, saying it plans to cut costs by divesting 15% of its refining capacity and 35% of its retail markets.

The supermajor expects production will reach 3.5 million boe/d in 2012 compared with 3.15 million boe/d in 2009. Outlining the company’s strategy from London on Mar. 16, Shell executives did not specify which downstream assets might be sold or when.

“Shell should be in a surplus cash flow position in 2012,” said Peter Voser, Shell chief executive officer. The company’s 2009 earnings were sharply reduced by the recession, which Voser attributed to Shell’s high exposure to refining and natural gas.

“Near-term pressures on downstream and gas margins remain,” Voser said. “However, the medium-term upstream fundamentals are robust. We expect oil to trade typically in a $50-90[/bbl] range, and to trend to the upside.”

He forecast attractive medium-term fundamentals for gas, adding he believes the global refining industry “may be in oversupply for some time.”

Shell expects net capital investment to be $25-27 billion/year for 2011-14, with up to $3 billion/year of asset sales, and $25-30 billion/year of organic investment, he said.

As projects come on stream, Shell expects cash flow from operations will increase by around 50% in 2012 compared with 2009, assuming oil prices of $60/bbl. The company forecasts cash flow could jump by more than 80% if oil prices average $80/bbl.

He sees what he calls “tremendous opportunity” for the company during 2015-20.Voser expects Shell’s exploration in the US, Canada, and Australia will strongly support the company’s anticipated upstream growth.

Shell reported its most successful exploration efforts in a decade during 2009 in terms of reserves additions, he said. Executives are assessing more than 35 new upstream projects, expected to underpin growth through 2020.

Growing production
The company reported proved reserves additions of 3.4 billion boe in 2009. Exploration efforts succeeded in the Gulf of Mexico, US and Canadian tight gas, and Australia. In the gulf, Shell established new production hubs at Vito, Stones, and in the Mars area.

Reserves additions included fields in the Gorgon LNG project in Australia, US deepwater developments (Perdido and Auger), the BC-10 project off Brazil, and an extension to the Muskeg River synthetic oil project in Canada.

Shell also added proved reserves in Nigeria, the Netherlands, Qatar, Kazakhstan, China, Malaysia, and Russia.

At yearend 2009, net proved reserves attributable to Shell were 14.1 billion boe, up 2.2 billion boe from yearend 2008. Shell’s reserves-to-production ratio increased to 11.9 years as of Dec. 31, 2009, compared with 10 years for yearend 2008.

Shell also has built “strong foundations” in gas-to-liquids, oil sands, and LNG projects, he said.

“In Canada, we retain options for further heavy oil expansion, with the nearer-term priority on improving operating efficiency and facilities debottlenecking,” Voser said.

Downstream, Shell is adding new chemicals capacity in Singapore and refining capacity in the US, and making selective growth investment in marketing.

“We are making substantial investments in new refining and petrochemicals capacity,” Voser said. “Once these projects are on stream, I expect the downstream growth emphasis will switch to further strengthening our marketing for the next several years.”

Contact Paula Dittrick at paulad@ogjonline.com.

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