Shell targets 11 percent growth in production by 2012, plans asset sales, job cuts

Shell to boost production, cut more jobs

AMSTERDAM — Oil company Royal Dutch Shell PLC said Tuesday it will boost production by 11 percent by 2012, more than it had previously forecast, and at the same time cut costs by selling operations and slashing more jobs.

The targeted output rise, to 3.5 million barrels of oil per day, would reverse a decade of production declines at Europe’s largest oil company and sharply boost cash-flow from operations. Shell had previously estimated production would increase by just 6-9 percent through 2012.

“All this is underpinned by a new wave of project startups,” said Chief Executive Peter Voser in a discussion of the company’s strategic plans. “Beyond that we have an upstream portfolio that can grow to at least 2020.”

Shell has been investing heavily in new production since a major accounting scandal forced it to slash its estimates of proven reserves by around a third in 2004.

Shell’s 2009 net profit of $12.5 billion fell by more than 50 percent from $26.3 billion in 2008, due to declining oil prices and slimmer refining margins.

Yet Shell said it expects its capital expenditures to remain high by industry standards, at least $25 billion per year for years to come.

As a result, the company said Tuesday it will freeze its 2010 dividend at the 2009 levels to keep its balance sheet strong while waiting for the production and cash-flow increases to materialize.

Shares rose 1.3 percent to €21.34 in Amsterdam.

The market update “reinforces our view that the company is at an important turning point operationally, with both exploration and production volumes and free cash flow set to improve significantly on a 2-3 year view,” said analyst Gordon Gray of Collins Stewart, who rates shares a buy.

Voser said the investment will yield a big payoff, with cash-flow expected to rise 50 percent by 2012 with oil at $60 per barrel and 80 percent if it rises to $80 per barrel.

He said the company expects oil “to trade typically in a $50-$90 range, and to trend to the upside.”

Shell said Tuesday it added around 3.4 billion barrels of oil to proven reserves in 2009, and 2.4 billion of new resources, a less rigorous category, “including new barrels in the Gulf of Mexico, North America tight gas, and Australia,” Shell said in a statement.

It called 2009 “the best year for exploration in a decade.”

“This is a very different position for the company than the one we were in a few years ago,” Voser said.

At the same time, he said the company will continue to try to cut costs.

Shell will try to raise an average of $3 billion a year by selling 15 percent of its refining assets and 35 percent of its retail outlets.

“Although oil companies have been cushioned from the recession by OPEC’s action on quotas and oil prices, Shell has been disadvantaged recently, due to our higher exposure to refining,” Voser said, explaining the move.

“The global refining industry may be in oversupply for some time,” he said.

Analyst Gray said Shell’s sales plan “looks like a fairly aggressive approach to improving the underlying profitability of this business”

In addition, the company announced plans to cut 2,000 jobs before 2012, 1,000 more than previously announced.

In the year ended in December, Shell laid off around 5 percent of its work force of roughly 100,000.