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The Scotsman: Oil giant ready to Shell out $10bn

SHELL is prepared to spend as much as $10 billion (£5.6 billion) on a single acquisition despite the high oil price in what is the group's latest attempt to replenish its dwindling reserves.
The oil giant's chief executive, Jeroen van der Veer, said that deals of around that scale would create value for its shareholders, and he would not rule out an expansion into any geographic region around the world.
“Even in times of high oil prices, it's possible,” he said on the sidelines of the World Economic Forum in Davos. “You may do small acquisitions or swaps of up to $10bn.” However, he ruled out any larger deals as the high price of oil would make them uneconomic.
Shell, the world's third-largest listed oil firm by market value, is still living down a reserves scandal that shocked investors in 2004. The revelation that its oil and gas reserves were massively overstated sent Shell's shares tumbling.
The market is awaiting an update on Shell's reserve replacement progress at its annual results next Thursday. A year ago, the group reported that it found only 45-55 per cent of the oil it pumped in 2004, vexing investors.
One area where Shell is unlikely to expand is the North Sea. The group revealed in December that it was cutting back future exploration plans following a tax hike on production by Gordon Brown, while it put three of its fields in the maturing area up for sale last April.
Van der Veer was also keen to discuss troubled Nigeria, where Shell ranks as the biggest foreign producer. He said his first concern was for the safety of four oil workers held hostage by militants – a flash point in a five-week campaign of sabotage and kidnapping by the Movement for the Emancipation of the Niger Delta.
The crisis has pushed world oil prices to four-month highs and shut in 221,000 barrels per day of Shell's output in Nigeria.
“I expect the government would like to sit down with [the oil] industry and talk about what can happen on security and keeping the oil flowing,” Van der Veer said.
The Nigerian movement said it would make Shell suffer unless it paid $1.5bn to delta villages in compensation for decades of oil pollution, which is one of its demands for releasing the hostages. Van der Veer said repairs could not start on damaged oil infrastructure until discussions about ensuring security in the OPEC producer had taken place. “When the situation is safe again, then you can restart production very quickly,” he said.
The Dutchman added that Shell remained committed to increasing output of oil from so-called “unconventional” deposits despite some project cost overruns and a string of unplanned outages.
Shell has started a study for an oil shales project in Colorado, he said. It will test technology for heating oil underground there. Oil shales is a type of rock that can be turned into an oily substance at a high temperature – and can be found in Scotland.
Shell is also looking at oil deposits in ever-deeper water, and analysing deposits of tight gas, or gas left in reservoirs after conventional drilling. The group's shares closed off 6p at 1,835p.

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