The Guardian: Shell's revival plan falls flat in the City: Oil group to invest $45bn with no guarantee that production will increase: “A crucial strategy briefing to reignite City confidence in Shell fell flat yesterday with investors "underwhelmed" by forecasts of flat production growth and no major commitment to share buybacks.” (ShellNews.net)

Terry Macalister

Thursday September 23, 2004

A crucial strategy briefing to reignite City confidence in Shell fell flat yesterday with investors "underwhelmed" by forecasts of flat production growth and no major commitment to share buybacks.

Shares in the troubled oil group fell 3% to 418p as it promised to invest $45bn (£25.1bn) by 2006 but admitted this might not be enough to increase production from current levels - even by 2009.

The company - still reeling from a 20% downgrade in proven reserves in January - also announced plans to sell up to $12bn worth of under-performing assets by 2006.

Chairman Jeroen van der Veer said the company would look at acquisitions but would only engage in share buybacks in 2005 and onwards if it did not need the cash for dividends or investment.

"We are focused on improving our competitive position, strong cash generation and total shareholder returns. Replacing our reserves is a priority to support future growth."

Mr van der Veer said that Shell needed to assume an oil price above $25 a barrel to make sure income would cover capital spending. The company had previously used $20 a barrel. His statements coincided with a jump in the price of crude yesterday to $48.35 a barrel in New York, up $1.59, after the US government said that stockpiles had been depleted by the effect of Hurricane Ivan.

Shell's exploration director Malcolm Brinded shrugged off the fact that production might be flat, at least until 2009.

"I don't think it's a disappointment. I think it's clear guidance," he argued after confirming output might be only 3.8m barrels of oil equivalents a day in five years' time - the same as 2004.

Of the $15bn worth of investment a year until 2006, $11bn would be spent upstream - on new exploration and production. The $45bn investment compares with $38bn for the past three years.

Shell was confident of keeping its proven oil and gas reserves replacement ratio at 100% a year from now to 2008.

Shell shares plunged in January when it made a series of downgrades in its reserves position. This led to the ousting of chairman Sir Philip Watts and other senior directors.

It also led to $150m worth of regulatory fines, cost the company its triple A credit rating and led to speculation it could become a bid target.

Analysts expressed frustration at the lack of a new initiative to put the company back on track.

Bruce Evers at Investec Securities said he was "underwhelmed" by the presentation. "I was bitterly disappointed about volume growth and the lack of clarity on share buy backs," he added.

And another London analyst who declined to be named said: "There was nothing very exciting here. No one has waved the magic wand and future profit levels look likely to be lower than expected."

Meanwhile the Financial Services Authority finally responded publicly to Sir Philip's challenge against its ruling on Shell.

It had found the company guilty of market abuse and imposed a £17m fine over the reserves fiasco. An FSA spokesman said he was confident an independent arbiter would find in its favour.

Mr van der Veer said yesterday that this was an issue between the former chairman and the FSA.

http://www.guardian.co.uk/business/story/0,3604,1310615,00.html