Bloomberg: Shell Makes Oil Find in Russia, Sees Reserves Boost (Update2): “Shell, Europe's second-largest oil company, is counting on projects in Russia to help boost falling output and reserves” (ShellNews.net)

Aug. 10 (Bloomberg) -- A Royal Dutch/Shell Group venture in Russia said an exploration well it drilled at the Upper Salym field in western Siberia found oil and should allow the company to boost its reserves at the site.

The well, drilled to 2,316 meters into the Bonus structure at the field, found an estimated 16 meters of oil-bearing sand, the venture said in a statement. Testing of the well is scheduled for the northern autumn this year, it said.

Shell, Europe's second-largest oil company, is counting on projects in Russia to help boost falling output and reserves. Its venture is spending more than $1 billion to develop the three Salym fields, which hold reserves equal to about 16 percent of those Shell removed from its holdings earlier this year.

``Any reserves upside is good for Shell at the moment,'' said Jason Kenney, an analyst at ING Financial Markets in Edinburgh, which has a ``hold'' rating on Shell. ``This could be considered quite a key project for Shell's longer-term outlook.''

Shell, based in London and The Hague, owns 50 percent of the venture, Salym Petroleum Development NV, which holds the licenses to the fields. The rest is held by OAO Evikhon, which is controlled by London-based Sibir Energy Plc.

``This should enable us to eventually increase the proven reserves for Upper Salym,'' Dale Rollins, the venture's chief executive officer, said in the statement. ``The amount of additional reserves is under study.''

Shares Rise

Shell Transport & Trading Co. shares, which represent 40 percent of Shell, were up 8 pence, or 2 percent, at 402 pence at 12:50 p.m. in London. Shares of BP Plc, Europe's largest oil company, also rose, gaining 1.2 percent to 507 pence.

Sibir suspended trading of its shares in April after discovering its stake in Sibneft-Yugra, a venture to explore Siberian oil fields, had been diluted. OAO Sibneft in December bought 49 percent of the venture for a ``nominal consideration,'' according to Sibneft's 2003 consolidated financial statements.

Shell is aiming to boost reserves after disclosing this year it had wrongly booked 23 percent of its 2002 holdings, or 4.47 billion barrels, as proven. The Salym fields hold 700 million barrels of recoverable oil, according to a 1998 Shell statement.

Oil production from Upper Salym has already begun, and commercial output from West Salym should start by the end of 2005, the statement said. The venture expects production from the third field, Vadelyp, to start by the end of 2006.

Production at West Salym, the largest of the three, should peak at 120,000 barrels a day in 2009, the statement said.

Development Budget

The venture agreed last September to the budget to develop the fields, after failing to secure a tax agreement from Russia's government. The project will be riskier than under the production- sharing accord Shell sought, which would have fixed the amount of money the government could take for the oil.

Oil companies including BP and Shell are increasing investment in Russia, the world's second-largest oil exporter. Shell also holds 55 percent of a $10 billion venture to tap natural gas off Russia's Sakhalin Island.

To contact the reporter on this story:

Alex Lawler in London  at alawler@bloomberg.net

To contact the editor of this story:

Tim Coulter in London at  tcoulter@bloomberg.net.

Last Updated: August 10, 2004 08:11 EDT

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