BLOOMBERG: Shell's Spending on Drilling, Equipment to Rise to $19 Billion: “Rising prices for labor and raw materials such as steel have sent costs soaring at projects including Shell's Sakhalin-2 venture. Its Bonga offshore oil field in Nigeria started late and over budget.”: “Surging prices caused costs for Shell's Sakhalin joint venture, which includes a liquefied natural gas export terminal, to balloon to about $20 billion from an original budget of $10 billion, Shell has said. The overruns have prompted Russian state- run gas company OAO Gazprom, which plans to buy a stake in the venture by swapping other assets with Shell, to reevaluate the terms of the transaction.”: Tuesday 13 December 2005

Dec. 13 (Bloomberg) -- Royal Dutch Shell Plc, the world's third-largest publicly traded oil company, increased next year's planned spending for drilling and equipment by 27 percent as it seeks to increase production amid rising costs.

Capital investment will be $19 billion next year, Shell said today in a PR Newswire statement. That's up from earlier forecasts of $15 billion. The company, based in The Hague, in October repeated spending in 2005 will be about $15 billion, excluding its Sakhalin project in Russia.

Rising prices for labor and raw materials such as steel have sent costs soaring at projects including Shell's Sakhalin-2 venture. Its Bonga offshore oil field in Nigeria started late and over budget. Chief Executive Officer Jeroen van der Veer in October said new projects were beginning in countries such as Oman and Brunei, with drilling achieving a 72 percent success rate.

The company produced 3.2 million barrels of oil equivalent a day in the third quarter, down 11 percent from a year earlier, after the loss of an average 160,000 barrels a day because of hurricanes in the Gulf of Mexico. During the period, Shell drilled 15 successful exploration and appraisal wells around the world.

Third-quarter profit soared 68 percent, rewarding investors who suffered last year when the company admitted overstating its reserves, a revelation that prompted fines, lawsuits and ousted Van der Veer's predecessor.

Shell had said in its 2004 annual report, published May 27, that capital expenditure would probably be $15 billion per year for the ``medium term,'' or next few years. Capital spending in 2004 was $14.9 billion.

Sakhalin, Bonga

BP Plc, Europe's biggest oil company, on Oct. 25 said capital spending will be about $15 billion in 2006, up from about $14 billion this year. Exxon Mobil Corp., the world's largest publicly traded oil company, the same week raised its 2005 spending estimate to $18 billion from a July target of $17 billion.

Chevron Corp., the No. 2 U.S. oil company, on Dec. 8 said it plans to boost capital spending next year by 35 percent to $14.8 billion to boost production. ConocoPhillips, the third-biggest oil company in the U.S., the next day announced a 45 percent jump in spending for next year to $10 billion.

Surging prices caused costs for Shell's Sakhalin joint venture, which includes a liquefied natural gas export terminal, to balloon to about $20 billion from an original budget of $10 billion, Shell has said. The overruns have prompted Russian state- run gas company OAO Gazprom, which plans to buy a stake in the venture by swapping other assets with Shell, to reevaluate the terms of the transaction.

`Too Tough'

Another project, Shell's Pearl gas-to-liquids refinery in Qatar, may also suffer from rising costs for parts and labor, the company has previously said.

Shell began producing crude from Bonga, an offshore Nigerian oil field, last month after delays of some two years sent project costs to $3.6 billion from an original budget of $2.7 billion.

``We set too tough targets when we set out on the project,'' Shell's exploration chief, Malcolm Brinded, told reporters on a Nov. 28 conference call about Bonga. ``We recognize we took on more work than we anticipated.''

Shell was the hardest-hit oil company by Hurricanes Katrina and Rita. The Mars offshore platform, which pumped about 5 percent of its oil, will stay shut for at least eight more months of repairs, the company said in October.

To contact the reporters on this story:

Mathew Carr in London at m.carr@bloomberg.net;

Bill Murray in London at wmurray1@bloomberg.net

Last Updated: December 13, 2005 02:35 EST 

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