Financial Times: Lex: “Royal Dutch/Shell is trying to regain its reputation.”: “Thanks to high oil prices Shell's share price has more than regained the ground lost in this year's reserves scandal. But, while a rising tide lifts all boats, there is little in Shell's strategy to significantly narrow the gap with rival BP” (ShellNews.net)

Posted 23 Sept 04

At least Shell is facing up to reality. After years of sub-standard performance on reserve replacement, capital expenditure is set to rise. A focus on larger prospects and a bias towards gas, where returns are high and Shell has a leadership position, appear sensible. It is, however, a case of "jam tomorrow". Emphasising how thickly the jam might be spread cannot hide the fact that production is expected to be broadly flat until 2009. No production growth and a target of 100 per cent reserve replacement until 2008 will not narrow the gap with its peers.

Gearing is expected to drop to about 15 per cent by the end of the year, below the 20 per cent floor of its targeted range, but Shell would not commit to share buybacks for 2005. The group is now using a $25 a barrel oil price for cash-flow planning, suggesting buybacks will be less generous than rival BP, which is still using $20. Individual investment projects at Shell, however, are still assessed at more conservative oil prices.

Disposals are set to rise, with $10bn-$12bn planned for 2004-06. This is welcome, but a more radical step would have been to sell even more mature assets and sharpen the focus on gas. Perhaps shrinking the company is unpalatable to Shell's management, despite a commitment to urgency and action.

Thanks to high oil prices Shell's share price has more than regained the ground lost in this year's reserves scandal. But, while a rising tide lifts all boats, there is little in Shell's strategy to significantly narrow the gap with rival BP