Shell Plans Major Investments in 2009, Tags Dividend Growth at $10B

As part of its annual review of strategy, Shell said it is continuing with plans to build new upstream and downstream capacity, while managing the near-term challenges of the global economic slowdown.

Shell is taking a prudent approach. Long-term oil and gas fundamentals remain positive, but the industry is facing a sharp downturn in energy prices at a time when costs are high by historical standards.

Jeroen van der Veer, Royal Dutch Shell's Chief Executive, commented, "These are testing times in the oil and gas industry. Whilst short-term measures are important, we keep our long-term perspective, and continue to believe that energy needs over the long term provide a positive context for Shell's investment programmes today."

The challenge in Upstream is to produce new barrels to offset natural field decline, and to create new growth. In Downstream, we need to balance the continued demand from customers and governments for cleaner products, with the challenges to the industry from the cost of supply."

"The key to success sits with operational excellence, technology, project management and financial capacity, and I am pleased with the capabilities we have built in Shell," he said.

Shell launched very few new projects in 2007-08, to avoid the peak in the cost cycle.

This pause, combined with Shell's global scale, gives new opportunities to reduce supply chain costs ahead of launching new projects.
Shell has balance sheet flexibility to maintain investment and grow dividends in the downturn, and to fund future growth projects. Shell makes long-term investments to create long-term shareholder value.

Major investments underway today include:

  • Oil and gas fields with some ~1 million barrels oil equivalent per day (boe/d) of capacity, which will generate 2-3% annual production growth early in the next decade, to 2012.
  • 6.5 million tonnes per year of new liquefied natural gas (LNG) capacity, an increase of 40% over 2008 levels
  • Pre-FID options upstream that could add more than 1 million boe/d of additional capacity, from a resources base that can support growth to at least 2020.

Shell will invest some $31-$32 billion in 2009 to create this industry-leading portfolio. Dividends are an important statement of confidence in the future, and Shell is the only company in the sector to have already announced dividend growth plans for 2009.

Dividends for 2009 are expected to be some $10 billion, a 5% increase of Q1 2009 dividend per share compared to Q1 2008 levels.
This investment is underpinned by Shell's strong balance sheet, where end-2008 gearing stood at 6%.

Van der Veer continued "We are rejuvenating the portfolio for profitability, scale and new growth, and Shell has made considerable progress."

"In Downstream, we continued with disposal of selected refining capacity in 2008, before the downturn in financial markets, bringing the total sold this decade to over 800,000 b/d. These disposals have increased our average refinery size by 15%. Portfolio refocusing continues, with potential exits from certain refining and marketing assets in Germany and New Zealand portfolios, impacting a further 5% of Shell's global refining capacity."

"In Upstream, disposals of some 20,000 boe/d were completed 2008, bringing the total capacity sold in the rising market this decade to ~300,000 boe/d."

"Exploration drilling in 2008 added some 1.2 billion barrels of resources, at a finding cost of $2-3 per barrel. Business development activities added over 1 billion barrels of resources in 2008 for Shell."

Reserves replacement performance including oil sands remains satisfactory, with net reserves attributable to Shell shareholders at end-2008 of 11.9 billion boe, unchanged from year ago levels. End 2008 reserves life stands at 10 years.

For 2006-2008, organic reserves (including oil sands) additions, excluding acquisitions, divestments and year-end price effects, were 4.6 billion boe, compared to production of 3.7 billion boe, a reserves replacement ratio of 126%. Organic reserves replacement including oil sands and year-end price effects for 2006-08 was 120%.

Organic reserves additions (including oil sands) for 2008 were 1.1 billion boe, compared to 1.2 billion boe of production, and reserves replacement was 95%. Organic reserves replacement, including oil sands and year-end price effects, was 97%.

Van der Veer continued: "The economic slowdown creates opportunities for Shell to reduce supply-chain costs, as spare capacity in the services industry comes into play. We don't have a crystal ball on oil prices, so we are planning on the basis that the downturn could last more than a year," Van der Veer said.

"We continue to focus the company on delivering strong operating performance, and maintaining the financial flexibility to fund both new projects, and returns to shareholders."
 

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