Royal Dutch Shell provided an update Thursday on progress against its strategic plan to generate profitable growth. The firm said that in today's volatile economic environment, the company's strategic aim remains to drive forward with its investment program as well as to deliver sustainable growth and provide competitive returns to shareholders.
Shell's key highlights were:
- Global economy and energy markets likely to see continued high volatility. Shell remains focused on through-cycle investment for sustainable growth.
- Delivery of underlying strategic drivers for 2012 targets established, underpinned by 14 project start-ups 2009-11, and Shell's continuous improvement programs.
- Shell declared circa $10.5 billion of dividends in 2011 and expects to grow the dividend in 2012, reflecting an improving financial position.
- Net capital investment in 2012 of $30 billion – 80 percent in Upstream – as Shell invests for a new tranche of growth.
- Measured increase in spending and payout underpinned by a new outlook for cash flow from operations for the period 2012-15 some 30 to 50 percent higher than the 2008-11 total.
- Growth outlook driven by over 60 new projects and options, maturing circa 20 billion barrels of oil equivalent of new resources potential, including major projects in liquefied natural gas (LNG), deep water, tight gas, liquids-rich shales and traditional plays.
Economic development in non-OECD countries is driving sustained and long term demand growth for all forms of energy. Regulatory and political uncertainties, combined with challenges in debt markets, are adding to price and cost volatility in this long term trend.
Shell said it is investing for sustainable growth through what is likely to remain a highly volatile period in the economy and energy markets. The company's activities provide affordable, safe and reliable energy supplies for its customers, worldwide, it said.
Shell's three-year strategic plan, first outlined in early 2010, was designed to build the foundations for profitable growth for shareholders, by improving near-term competitive performance, and delivering growth to 2012. The firm said that the main strategic drivers of this plan have now been achieved:
- Performance focus. A substantial corporate reorganization, launched in 2009, simplified the company, reduced costs, and created a platform for faster delivery of its strategy. In addition, the firm is driving the Downstream portfolio to improve returns and growth potential.
- Cashflow from operations excluding working capital movements was $43 billion in 2011 – reaching the headline target set for 2012 – rebalancing the company to surplus cashflow.
- Continuous improvement and capital efficiency are embedded in Shell, the firm said. Disposals of $17 billion from 2009-11, and $15 billion of acquisitions are repositioning the company for new growth.
- Growth delivery. Shell has started up 14 new projects in 2009-11 – including the world class Pearl gas-to-liquids project in Qatar.
- Shell's oil and gas resources base on stream has increased by 33 percent, or three Bboe, to 12 Bboe between 2009 and 2011. Maintaining a strong project flow, the company is maturing a further 20 Bboe of new resources for future growth.
Shell added that its headline proved Reserves Replacement Ratio for the year on an SEC basis is expected to be around 100 percent. Its Organic Reserves Replacement Ratio, which excludes the impact of oil price movements in the year, acquisitions and divestments, is expected to be around 120 percent.
"Shell's strategy is innovative and competitive. Our improving financial position creates an opportunity to increase both our dividends and investment levels. With ramp up now well in hand for near-term growth, I want to move our agenda forward today, with new targets for the company," said Shell CEO Peter Voser.
"We are delivering our growth plans. Today's update sets a new and sustainable growth agenda for the company. We declared over $10 billion of dividends in 2011 and we are expecting to return to dividend growth for 2012. This reflects our confidence that there is more to come from Shell."
Voser added: "We have worked hard to generate a strong pipeline of investment opportunities for Shell, and we put the emphasis firmly on a competitive financial performance. Shell's investment programs create cashflow growth, which in turn funds our dividends. All of this is supported by efficiency gains from our continuous improvement programs, where the opportunity set runs to billions of dollars for Shell."
Shell said that net capital investment will be some $30 billion in 2012, with over 80 percent Upstream, of which 60 percent will be in North America and Australia. It continues to mature further development opportunities, with Final Investment Decision on 17 new projects during 2010/11. In 2011, the company has built new positions including Iraq gas, Asia Pacific LNG, liquids-rich shales, and new exploration acreage in 10 countries. This portfolio growth supports the firm's increased investment program and updated growth outlook.
Shell's cashflow from operations between 2008 and 2011 was $136 billion, excluding working capital movements. Cashflow from operations should be some 30 to 50 percent higher for 2012 to 2015.
Capital efficiency is a key part of Shell's strategy, the firm said. Divestments are expected to be between $2 billion and $3 billion in 2012, with $17 billion of asset sales completed in 2009 to 2011.
In Upstream, the company expects some 250,000 boepd of asset sales and license expires over the 2012 to 2017 timeframe. Assuming these impacts play out, oil & gas production should average some four million boepd in 2017 to 2018 – an increase of some 25 percent from 2011 levels of 3.2 million boepd.
The key investment themes that underpin this profitable growth, said Shell, include over 60 new projects and options, which should unlock oil & gas resources potential of over 20 Bboe:
- Exploration. Shell continues to balance exploration drilling in established basins, with selective expansion into frontier acreage, and new plays such as liquids-rich shales. Its exploration spending increased by some 30 percent to $3.6 billion in 2011, excluding acreage purchases, and should increase a further 35 percent in 2012 to some $5 billion.
- Traditional developments in Shell's heartlands will see $6 billion of 2012 investment. This includes extending the life of Shell's mature heartland positions such as the UK North Sea and South East Asia. Around $3 billion of investment in this category will be in countries with large undeveloped resources positions: Nigeria, Kazakhstan and Iraq.
- Integrated gas. Shell has circa eight million tons per annum of LNG capacity under construction – all in Australia – an increase of circa 40 percent over today's position, with at least $5 billion of capital investment planned for 2012. In addition, Shell has some 15 mtpa of new LNG capacity under study.
- Deep water oil and gas spending in 2012 of some $4 billion, with 250,000 boepd under construction, in seven projects spanning the Gulf of Mexico, Brazil and Malaysia.
- Tight gas and liquids-rich shales. Shell continues to build a worldwide portfolio in these new plays, with 50,000 square kilometers in total, including an increase of 12,000 square kilometers in 2011 in liquids-rich plays. The firm allocates capital to these plays on a short term basis with a high degree of flexibility, driven by economics and affordability. Some $4 billion of worldwide development investment is planned for 2012, focusing on production from the lowest cost gas positions, and growing its liquids production. Production from liquids-rich shales has the potential to reach some 250,000 boepd in 2017.
- In heavy oil world-wide, Shell is planning for $2 billion of 2012 spending, covering EOR, mining and upgrading activities. In Canada, Shell is investing in a series of debottlenecking projects in oil sands mining, which will add around 50,000 barrels per day by 2020.The firm expects to take final investment decision on a 1.1 mtpa carbon capture and storage project – Quest – in 2012.
- Shell added that it continues to focus on operational excellence and selective growth in Downstream, with $6 billion investment planned for 2012. Commissioning is underway at the 325,000 barrels per day Port Arthur refinery expansion project, creating one of the largest refineries in the United States, at some 600,000 barrels per day. Shell is also looking at new manufacturing capacity options in North America, in Qatar and in China, as well as selective growth in marketing activities, and continued momentum in Brazil biofuels.
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