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Reuters: Shell says oil price drop won’t cut energy projects

Mon Oct 16, 2006 1:41pm ET
By Tom Doggett

WASHINGTON, Oct 16 (Reuters) – Shell Oil Co. has no plans to cut back on its investments in energy exploration projects because of the steep drop in crude oil prices, the company’s president said on Monday.

The price for U.S. oil traded at the New York Mercantile Exchange has fallen from just over $78 a barrel in mid-July to around $59 on Monday.

John Hofmeister, the president of Shell Oil, which is the U.S. unit of Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research), said his company would continue with its planned energy projects, including expensive drilling in the deep waters of the Gulf of Mexico, even if the oil price fell to half the current level.

“Between, $20 and $40 we’re robust, and so we wouldn’t need to rethink (our investments) now,” Hofmeister told reporters on the sidelines of the American Petroleum Institute’s annual meeting.

“We’re always looking at these (oil prices). And we may make changes in priorities, but at this point we’re full steam ahead. We’re looking forward to next year,” Hofmeister said.

Separately, Robert Malone, president of BP Plc’s (BP.L: Quote, Profile, Research) U.S. unit, declined to discuss whether lower oil prices were causing second thoughts on energy exploration projects. He cited the imminent release of third-quarter financial results.

Hofmeister said Shell was still negotiating with the U.S. Interior Department over faulty lease contracts the company signed in the late 1990s to drill in the Gulf of Mexico.

The department accidentally left out language that would have ended a waiver of royalties when oil prices rose to around $38 a barrel. The government provided royalty relief at the time to encourage expensive deep-water drilling.

The government wants Shell and other oil companies to agree to pay future royalties that would be due if the language had been included. Some members of Congress are pushing legislation to force payment of about $2 billion in past royalties.

“We continue to be optimistic that we will see a settlement,” Hofmeister said. “We prefer a voluntary settlement to a legislated settlement, and we’re still working in that direction.”

He said Shell is willing to pay future royalties, but the company remains opposed to paying the past royalties.

Hofmeister would not provide details on what areas are under negotiation, such as whether Shell would prefer to turn over oil in lieu of cash royalty payments.

Malone said BP was still talking with the Interior Department about similar faulty drilling leases. He said there has been progress, but would not provide details.

He refused to say whether BP was willing to pay any future oil royalties that would be due, which the department says is a minium requirement in any of the voluntary agreements it reaches with the companies that have the disputed contracts.

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