Shell Shifts Oil Output Growth to Other Regions

LONDON (Dow Jones), Jan. 12, 2010

Royal Dutch Shell PLC no longer looks to its troubled Nigerian operations to drive growth in its oil and gas output, said Chief Executive Peter Voser in comments posted on the company's website Tuesday.

"Nigeria is still a heartland for Shell, but we no longer depend on it for our growth aspirations," said Voser. "This gives us more flexibility in deciding when and how to develop oil and gas resources in Nigeria."

Shell, which has been the dominant force in Nigeria's oil industry for decades, may be looking to dramatically reduce its presence in the country. It is seeking buyers for 10 of its Nigerian onshore oil producing assets worth between $4 billion and $5 billion in total, people familiar with the matter told the Wall Street Journal last month. China National Petroleum Corp. has been reported as a possible buyer.

Violence, kidnapping and sabotage attacks on infrastructure in Nigeria's oil producing areas have hampered Shell's operations for years. Despite a recent amnesty and a continuing truce between government forces and Niger Delta militants, violence continues.

Four expatriate Shell contractors were kidnapped in the Niger Delta Tuesday after their bus was ambushed by gunmen. Two Nigerians were killed in the attack. A Chevron Corp. oil pipeline was shut down following sabotage over the weekend.

"Shell staff in Nigeria are doing a great job in this very difficult environment," Voser said. "During 2009 sabotage and attacks on installations of the Shell Petroleum Development Corporation of Nigeria have again reduced production levels," and delayed a scheme to reduce gas flaring, he said.

Voser said in October that Shell's Nigerian oil output was down to 120,000 barrels per day from 300,000 barrels per day before the violence started.

Following the amnesty, oil production levels did improve toward the end of the year and its liquefied natural gas business is performing well, Voser noted.

Shell's output growth in the coming years will be driven by more unconventional energy projects, notably large LNG and gas-to-liquids developments approaching completion in Qatar. Shell has new developments with a combined output of around one million barrels equivalent of oil and gas per day under construction, although much of this will offset natural output decline in other assets.

These technology driven projects require massive capital expenditure and Voser warned of a looming oil supply crunch if investment in the wider industry does not rebound from a big drop in 2009.

"We've seen a worldwide drop in upstream oil and gas investment of some 20%. And for alternative energies the drop is even steeper, around 40%," he said. "Governments and industry must work together to get back to higher investment levels. Otherwise, we run a risk of a supply-demand imbalance in a few years time."

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