UPI: Analysis: Shell gives Wall Street jitters

UPI Energy Watch
By ANDREA R. MIHAILESCU
UPI Energy Correspondent
Royal Dutch Shell, which ranks third among the top five Western oil companies, could face a serious challenge in securing additional reserves, a prevalent fear among Wall Street analysts.
Whether Shell is able to replenish reserves will determine the company's ability to maintain growth and production in the future.
It is a crude reality, but the problem is not new.
Last year, Britain's TimesOnline depicted Shell in need of 3.8 million barrels per day, due to declines in output in the North Sea and United States along with rising costs worldwide. The Times graphic suggested a takeover or access to Iraqi oil might be a solution to some of Shell's problems.
Last year's earnings of $23 billion could be the best the British-Dutch venture can secure in years to come if it is unable to make a find to replenish its reserve count.
Fortune magazine said analysts fear “that buried beneath the record profit figures are worrying signs of a business in decline.”
Shell remains unsuccessful at making a discovery that is able to equate to the amount of oil and gas the company is currently pumping — it is still unable to replace 30 percent of what it produced in 2005.
In 2004, the company managed to replace 19 percent of what it extracted out of the ground. Shell's reserve problems and controversy surrounding improperly booked assets led the company to reduce estimated reserves by roughly 30 percent and resulted in the resignation of its chief executive officer Phil Watts in 2004.
Shell's competitors Exxon Mobil Corp. and BP managed to replace 112 percent of its production and 95 percent, respectively.
Turkey to diversify gas supplies
Turkey, which receives its natural gas from Russia and Iran, will begin purchasing its supplies from Egypt as of 2008, according to a bilateral agreement secured this week.
The move is designed to protect its stock and prevent problems during periods of high demand.
Under the agreement, the two sides will set up a joint venture called Tergas that will transfer natural gas, construct pipelines and also market Egyptian gas to Europe.
Tergas is expected to construct a 240-kilometer pipeline from Syria to the Turkish border, with an extension of 93 km from the Turkish border to the Turkish national network, Turkish Energy Minister Hilmi Guler said in a joint statement with Egyptian Oil Minister Sameh Fahmey.
Guler said he expects to have three-party talks in Cairo in early March with Syria and Egypt to discuss selling gas to Europe.
The project is aimed at diversifying natural gas sources for Turkey and Europe, Guler said, echoing the statements of Turkish Petroleum Cooperation General Manager Sami Dinc said.
Fahmey said Syria and Romania could possibly join the Tergas venture later.
The pipeline's proposed 93 km Turkish part is supposed to transport a total of 6.5 billion cubic meters of natural gas, of which 1.5 billion will be transported to Lebanon, 2 billion to Syria and 3 billion to Jordan.
Azerbaijan to boost output by 30 percent
Azerbaijan plans to boost its crude oil output by 30 percent to 30 million tons for 2006, Industry and Energy Minister Natik Aliyev told a meeting of Black Sea Economic Cooperation Organization experts last week.
The increase in production is expected to come primarily from growth in development of the Azeri-Chirag-Gyuneshli contract area consisting of three offshore oil fields in the Caspian.
The government hopes to see production at the contract area go up to 21.2 million tons against 13.2 million tons produced last year.
Aliyev said the first tanker carrying Azerbaijani crude could leave the Turkish port of Ceyhan in May.
“By that time construction will be completed of the Baku-Tbilisi-Ceyhan pipeline with a throughput of 50 million ton a year,” Aliyev said.
The boost in production would also help Azerbaijan's electric power production, as the country hopes to link its electric power grids with those of Russia, Georgia and Turkey.
“This would make it possible for us to exchange electricity and to market it in third countries,” he said.
Ecuador declares state of emergency
Ecuador declared a state of emergency Tuesday after strikes emerged in two provinces, one of which is a gasoline-producing region, as protesters demanded enhanced funds from the central government.
Global oil prices are affected by violent incidents such as those Ecuador and Nigeria. The prices of oil on London and New York markets were above $60 Tuesday and West Texas Intermediate rose again Wednesday to $62.05.
Last August, demonstrations provoked a force majeure on petroleum exports.
State-owned PetroEcuador had to halt crude oil exports Tuesday and closed a key pipeline that pumps 380,000 barrels per day as a result of protests, local reports said.
Protesters damaged the oil pipeline in the Amazonian Napo province.
Local reports said if the chaos continues, Ecuador will need to mobilize a multinational force to control it.
Ecuadorian Defense Minister Oswaldo Jarrin condemned sabotage done to the oil industry by locals claiming resources promised by the Executive.
Protesters want the government to construct two highways and an airport — projects promised by former President Lucio Gutierrez before he was forced out of office in April 2005.
Oil revenue accounts for approximately 25 percent of Ecuador's GDP.
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