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Shell tries to stay on an even keel

By KRISTEN HAYS

Copyright 2009 Houston Chronicle

Jan. 29, 2009, 11:11PM

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Royal Dutch Shell aims to ride out the recession this year with a higher dividend, flat spending and no plans as yet for layoffs.

But analysts expressed concern that the Netherlands-based company could set back production growth efforts by delaying final approvals on multibillion-dollar projects amid the global recession and sagging oil and gas prices.

Other oil majors also are moving ahead with projects already approved while delaying final decisions on some others until costs of doing business mirror the fall in oil and gas prices. Shell Chief Executive Jeroen Van der Veer said such delays by Shell include decisions to put off expanding Canadian oil sands operations and some deep- water exploration.

Credit Suisse analyst James Neale, in a note to investors, voiced concern that “the company’s return to growth will be short-lived in view of efforts by the company to slow final investment decisions on future growth projects due to current economic weakness, and in order to await lower future service costs.”

Shell has a string of pro-jects set to start producing in the next three years that will reap rewards as oil prices rise alongside an economic recovery.

Neale predicted that when Shell updates analysts on its plans in March, the strategy will be to “focus on the inevitability of a future rise in oil prices and to stress that its balance sheet is strong enough to endure an extended period of price weakness.”

Van der Veer alluded to that strategy Thursday as the company revealed lower quarterly and annual profits amid the downturn.

“A conservative balance sheet is key and I feel good about that. Sometimes these are tough choices,” he said.

Shell’s annual profit last year fell 16 percent short of 2007, showing that not even nine months of triple-digit oil prices could overcome crude’s plunge in the fourth quarter as the global recession took hold.

Summing up 2008

Shell, with U.S. operations based in Houston, earned $26.3 billion in profit in 2008, down from $31.1 billion in the prior year. And in the quarter, during which oil prices fell from more than $100 a barrel to the $40 range, Shell lost $2.8 billion, a sharp turnaround from an $8.5 billion profit in the last three months of 2007.

Excluding the effect of write-downs on inventory prompted by the fall in oil prices, Shell’s annual profit rose 14 percent to $31.5 billion from $27.5 billion, while quarterly income still fell 28 percent to $4.9 billion from $6.7 billion.

No plans yet for layoffs

While Van der Veer didn’t explicitly say Shell wouldn’t cut jobs this year, he announced no plans for layoffs when pressed by analysts. Shell has 104,000 employees worldwide, 12,000 of whom are in Houston.

He also said Shell plans to spend up to $32 billion on capital projects this year, the same as in 2008. Most of that has been committed to pro-jects that received the final go-ahead before oil and gas prices plummeted, including oil and liquefied natural gas production at Russia’s Sakhalin Island and its Perdido oil and gas platform in the Gulf of Mexico.

Chevron’s plans

Chevron also announced Thursday that its 2009 capital budget of $22.8 billion will mirror 2008’s. And like Shell, much of it is committed to ongoing projects, such as its new Tahiti oil and gas platform in the Gulf and pro-jects in offshore Angola and Brazil.

Chevron and Exxon Mobil Corp. are slated to unveil fourth-quarter and year-end 2008 results today, followed by BP and Marathon Oil on Tuesday.

So far, ConocoPhillips is the only oil major to announce job cuts — 4 percent, or about 1,350 of its 30,800 jobs worldwide.

Van der Veer said Shell will focus this year on increasing dividends rather than buying back its own stock. The company hiked its dividend 11 percent in the fourth quarter, and announced another 5 percent increase Thursday as a “signal of profitability in the future,” he said.

Van der Veer said buying back stock — popular to the tune of billions of dollars by all the oil majors as oil prices rose — is “really an upcycle activity.”

Production down

Shell’s production in the quarter was 3.4 million barrels of oil equivalent per day, down slightly from the year-ago period.

For the year, production fell to 3.25 million barrels per day from 3.3 million because of effects of production-sharing contracts with other countries and quota restrictions by the Organization of the Petroleum Exporting Countries.

In a production-sharing contract, companies are paid with barrels of oil, and when oil prices rise, fewer barrels change hands. Excluding those effects, production was flat year to year, the company said.

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