Shell to pump up output – but limits view to 4 years

Published on Tuesday 17 March 2009 20:07

ROYAL Dutch Shell revealed yesterday that it would boost production by 2 to 3 per cent annually over the next four years – ahead of major rival BP's stated target of 1 to 2 per cent.

But the British-Dutch oil giant said the outlook for the industry, with the oil price declining sharply from last summer's near-$150 high, was too uncertain for it to be able to set longer-term targets.

Shell confirmed what many in the market had expected on 2009 dividends, saying they would be 5 per cent ahead of 2008. Shell will pay out a total of $10 billion (7bn) in shareholder dividends this year.

BP has said it will continue to pay dividends this year – but did not commit to raising the level of the payout.

Tony Shepard, oil analyst at broker Charles Stanley, said: "The 5 per cent annual dividend rise was taken as a given when Shell said at its annual results for 2008 that the divi in the first quarter of this year would go up by 5 per cent."

Despite the twin boosts to investor sentiment on production and dividends, Shell's shares closed down 21p at 1,619p.

Shepard said: "The market is still trying to digest what impact the recession will have on oil groups.

"A total of $31bn of investment has previously been indicated by Shell. And if they are also going to spend $10bn on dividends that has all got to be financed."

Shell, whose output has been falling for six years, said big investments in "low-decline" projects will allow it to meet its 2 to 3 per cent growth target in 2009 through to 2012.

However, the group added that the uncertain economic outlook, which has contributed to a $100-a-barrel drop in crude prices since July, meant it may mothball some new projects.

Consequently, the company said it was impossible to affirm its earlier goal of 2 to 3 per cent growth in the long term. Chief executive Jeroen van der Veer, who steps down this summer, said: "We are planning on the basis that the downturn could last more than a year."

The firm has said it does not plan to make further share buybacks in 2009 after it spent more than $3bn on buybacks in 2008.

Shell remains under investigation by the Securities and Exchanges Commission, the US financial regulator, and the US department of justice (DoJ), for alleged violations of the US Foreign Corrupt Practices Act, Shell said in its annual report.

Chief financial officer Peter Voser, who will replace van der Veer as chief executive, said this was an extension of a previously disclosed probe.

The case involves Shell's use of a Swiss-based freight forwarding firm called Panalpina. The latter has said it is helping the DoJ in relation to suspected bribery in Nigeria, Kazakhstan and Saudi Arabia.