The New York Times: MARKET PLACE: A Strategy for Shell? “…it has paid $150 million in fines after investigations by United States and British regulators. It still faces about a dozen lawsuits and may suffer more negative publicity as one of the executives, Sir Philip Watts, the former chairman, mounts his defense.” (ShellNews.net)

By HEATHER TIMMONS

LONDON

September 23, 2004

THE Royal Dutch/Shell Group said yesterday that it would sell as much as $12 billion in assets, spend $45 billion on new projects and consider some acquisitions as it tries to bolster oil and gas production.

In Shell's first long-term strategy presentation since it unnerved the markets in January by reducing estimates of oil and gas reserves 20 percent, the company's chairman, Jeroen van der Veer, promised more profitable businesses and said Shell would "raise the performance bar."

But analysts and investors were less than enthusiastic, and shares of the companies that make up the Shell group dropped.

Shell plans to spend $15 billion a year through 2006 on so-called organic growth, or projects intended to increase production without making outright acquisitions, Mr. van der Veer said. Higher oil prices are helping to buoy spending, and Shell foresees "higher energy prices for some time," he said, adding, "We have the financial muscle to fund our ambitions."

The company also said it was planning to sell $10 billion to $12 billion of lower-performing businesses in the next couple of years. Sales may include Shell's liquid petroleum gas business. An unidentified company has approached Shell about buying the operation, said Rob Routs, chief executive for oil products and chemicals. Shell will not discuss the value of the unit in the middle of the negotiating process and does not break out figures for the unit, Mr. Routs said in response to questions.

The company also said that it had received bids for its refinery in Bakersfield, Calif., and would continue negotiations with potential buyers into the fourth quarter. It did not elaborate about other sales.

In a turnaround, Shell said it might be a buyer itself in some areas. "We will consider targeted acquisitions that fit our strategy," said Malcolm Brinded, who is in charge of exploration and production. Previously, Mr. van der Veer stressed that high oil prices made acquisitions unattractive.

Shell will focus some of its spending on expanding an already strong gas business, Mr. van der Veer said, adding that "gas is growing more than oil." The company is already the world's largest supplier of liquefied natural gas. By 2014, Shell anticipates that gas will account for 40 percent to 45 percent of its annual production, up from 39 percent this year.

Shell hopes to spend more on integrated gas projects, like its Sakhalin field in the Russian Far East, and on unconventional oil sources, like a project in Canada that extracts oil from sand.

It will also invest $1.5 billion a year on new exploration projects, concentrating on fields that could yield 100 million barrels of oil or more.

Production levels will be flat to just slightly higher through 2006, as previously announced, Shell said, at an estimated 3.5 million to 3.8 million barrels a day. It expects production of 3.8 million to 4 million barrels a day in 2009.

The company reconfirmed yesterday that it had proven oil reserves of 14.4 billion barrels at the end of 2003.

Since Shell reduced the estimate of reserves, two top executives have left and it has paid $150 million in fines after investigations by United States and British regulators. It still faces about a dozen lawsuits and may suffer more negative publicity as one of the executives, Sir Philip Watts, the former chairman, mounts his defense.

Last week, Sir Philip said that he had not acted improperly during his tenure at the company and he accused British regulators of violating his rights.

In response to a question yesterday about Sir Philip's recent actions, Mr. van der Veer said Shell was "satisfied" with the settlements it reached with regulators.

The company's announcement on its strategy was greeted halfheartedly by analysts and investors, who had hoped that Shell would return some money to shareholders.

"Effectively, they're trying to spend their way out of their problems by increasing their expenditures and selling off their noncore businesses," said Paul Mumford, a fund manager at Cavendish Asset Management in London.

Shares of Shell Transport and Trading, one of the publicly traded entities that make up the Royal Dutch/Shell Group, fell 14.25 pence in London yesterday, or 3.3 percent, to £4.18. Its American depository receipts fell $1.56, to $45.47. Shares of Royal Dutch Petroleum, the other entity, fell 1.04 euros in Amsterdam, or 2.4 percent, to 42.27 euros. Its A.D.R.'s fell $1.80, to $51.93.

Because Shell is in the spending phase of the investment cycle, investors say they are not reaping rewards, even as energy futures trade near record highs.

Ivor Pether, fund manager at Royal Asset Management, said that "2008 will probably be a good year for them"; his firm has $41 billion in assets under management, including Shell shares.

Shell's spending contrasts with its closest competitor, BP, which has been buying back shares.

Shell executives would not commit themselves to any more stock buybacks this year beyond a previously announced $2 billion, and Mr. van der Veer said buybacks were on the bottom of his list of priorities for the coming years.

Investors had been expecting more detail about how the company's structure might change in the future and more clarity about possible share buybacks, said Mark Lovett, chief investment officer for British and European equities at RCM, the largest equity asset management group in Allianz, with more than $40 billion under management.

Investors are "underwhelmed," Mr. Lovett said.

http://www.nytimes.com/2004/09/23/business/23place.html?pagewanted=print&position=