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Shell offers reassurance on dividend policy

Daily Telegraph

Oil giant takes ‘value not volume’ approach, reports Garry White

 Last Updated: 4:17PM GMT 17 Mar 2009

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Anglo-Dutch energy giant Royal Dutch Shell has restated its commitment to its policy of increasing dividends in line with inflation and indicated it is looking for “value not volume” when it comes to production.

At a strategy presentation yesterday, the group said its reserve replacement ratio, which indicates the proportion of new oil discoveries compared to the amount of oil it pumped, fell to 95pc in 2008 from 124pc in 2007. During 2008, BP’s reserve replacement ratio stood at 124pc. 

However, outgoing chief executive Jeroen van der Veer noted that Shell’s overall reserve replacement figure for the 2006-2008 period was 126pc and argued that one year’s number could not be taken in isolation.

Output fell for the sixth consecutive year in 2008, but the company pointed out during the course of the presentation that it was not seeking to boost headline production numbers but to invest in new sources of production that generated “value” at this point in the cycle.

Shell expects production in the current year will be slightly lower, although it said output to 2012 would grow at an average of 2pc to 3pc per year. It is currently developing oil and gas fields with potential output of approximately 1m barrels of oil equivalent per day, it said.

The company was upbeat on the prospect of cost cuts and stressed that the timing of its investment decision in the downcycle could help create shareholder value. The company will maintain investment in 2009 at $31bn (£22bn) to $32bn to take advantage of falling costs in, for example, steel.

There was positive news on the dividend, as chief financial office Peter Voser, who will step up to the chief executive role once Mr van der Veer retires in July, noted that the group had already committed to a 5pc dividend increase in the first quarter and said the group would pay out a total of $10bn in dividends this year.

Shell also admitted in its annual report that it is under investigation by the US Securities and Exchange Commission (SEC) and the US Department of Justice (DoJ) for “violations of the US Foreign Corrupt Practices Act”. The company said it is undertaking an internal investigation, but highlighted the risk of fines and additional costs.

In the same report, Shell states that its Business Principles forbid, amongst other things, bribery, fraud and anti-competitive behaviour.

In July 2007, 11 oil and oil-service companies received a letter from the DoJ criminal fraud section asking them to detail their relationship with Panalpina, a Swiss-based logistics group.

A Shell spokesman said: “The Panalpina investigation disclosed on form 20-F is the same investigation that was disclosed in our last filing and we are co-operating with the DoJ and SEC.”

Shell shares fell 43.5p to £15.97.

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