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Nigerian Oil Wells Marked Part of $15b Shell Investment

AllAfrica.com: Nigerian Oil Wells Marked Part of $15b Shell Investment

“Several top brass including chairman Philip Watts were ousted in the wake of Shell’s restatement of reserves. It later emerged that several senior executives had been aware of problems long before they were made public. The oil giant was fined a total of 150 million dollars by US and British regulators last month.”

Hector Igbikiowubo, With Agency Report

Vanguard (Lagos)

September 28, 2004

MAJOR Nigerian oil wells operated by Royal Dutch/Shell are to benefit from the company’s plan to increase it’s global annual capital investment to $15billion (about N2.04trillion)to boost spending on exploration and production, and make the replacement of its missing reserves a priority.

The company also served notice that it will, in addition, sell non-core assets and this is all aimed at restoring traumatised investor confidence.

The company explained that its annual capital spending levels would increase to 15 billion dollars (12.2 billion euros) from 2004 to 2006 — of which 11.5 billion is for upstream operations — from 14.3 billion in 2003.

The group has been investing heavily in Russia, notably in a venture to tap gas off the Far East island of Sakhalin. Exploration will now focus on major wells such as those recently discovered in Nigeria, Kazakhstan, Egypt, the Gulf of Mexico and Malaysia, Shell said.

Unveiling a keenly awaited strategy blue-print, the oil major said it planned to sell non-strategic and underperforming assets worth an estimated 10-12 billion dollars by 2006, while looking at “focused acquisitions”.

Shell chairman Jeroen van der Veer said: “We are focused on improving our competitive position, strong cash generation and total shareholder returns.

“Replacing our reserves is a priority to support future growth. Operationally, we aim at delivering top quartile performance and adhering strictly to project milestones.”

Shell is seeking to win back investors’ faith which was severely dented after the group admitted in January it had overstated its proved oil and gas reserves by 20 percent. The group has since slashed its proved reserves by a total of 4.47 billion barrels to 14.4 billion.

Shell forecast daily production of 3.7-3.8 million barrels this year, 3.5-3.8 million in 2005 and 2006, rising to 3.8-4.0 million by 2009.

By the end of 2009, the company plans to bring on stream the facilities and infrastructure to allow it to unlock 13 billion barrels of new reserves.

The proved reserve replacement ratio, measuring the amount of used reserves that are replaced, is expected to average at least 100 percent for the period 2004 to 2008.

Investors gave the strategy plan a cool response, however. The price of shares in Shell fell by 2.43 percent to 421.75 pence in early afternoon deals.

“These capital heavy, long-term recovery themes point to a discount rating for the shares, although Shell has stabilized its industrial story here,” said Deutsche Bank analyst JJ Traynor. There was no news on the Anglo-Dutch group’s review of its much-criticised structure, the outcome of which will be published in November.

But Van der Veer told reporters that a merger of the Anglo-Dutch oil giant’s twin boards was one option being considered.

Under the Anglo-Dutch oil giant’s unusual ownership structure, London-based Shell owns 40 percent of the group and Netherlands-domiciled Royal Dutch Petroleum Company holds 60 percent.

The group’s structure dates back to 1907 from the merger of Royal Dutch, formed in the Netherlands to develop oil fields in Asia, and Shell, which began life as a small family shop in London selling sea shells before growing into an import-export business shipping oil to the Far East.

Shell pledged to continue with its existing share buyback programme for 2004 but refused to commit to further plans for next year.

Van der Veer said the group’s priority was to accelerate spending on its global upstream business.

Several top brass including chairman Philip Watts were ousted in the wake of Shell’s restatement of reserves.

It later emerged that several senior executives had been aware of problems long before they were made public. The oil giant was fined a total of 150 million dollars by US and British regulators last month.

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