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Shell To Pay $10 Bln Of Dividends; Production Not Replaced

Dow Jones

CNNMoney.com

March 17, 2009: 08:54 AM ET

LONDON (Dow Jones) — Royal Dutch Shell on Tuesday said it didn’t replace last year’s production with new reserves, as The Hague-based oil giant said it would distribute $10 billion worth of dividends this year.

Shell (RDSA), in a strategy update, said it replaced 95% of its reserves in 2008 by its own methodology.

Even when including oil sands and year-end price effects, Shell’s reserve replacement was 97%, falling below the 100% mark needed to maintain future production and a figure below that of rivals like Exxon Mobil (XOM) and BP (BP).

The company’s 11.9 billion barrels of oil equivalent could last it a decade.

Still, Shell reiterated that it’s aiming for 2% to 3% annual production growth through 2012.

BP, by contrast, has a 1% to 2% annual production growth target.

Shell said capital spending will range between $31 billion and $32 billion this year, compared to the $32 billion spent in 2008.

“The economic slowdown creates opportunities for Shell to reduce supply-chain costs, as spare capacity in the services industry comes into play,” said CEO Jeroen van der Veer.

Shell noted that it basically refrained from major new projects over the last two years to avoid the peak of the cost cycle.

But it’s not just costs that are falling. Oil futures have tumbled from highs of $147 a barrel last summer to nearly $47 a barrel on the lead contract on Tuesday morning.

“We don’t have a crystal ball on oil prices, so we are planning on the basis that the downturn could last more than a year,” the chief executive said.

Still, Shell noted that it’s the only company in the sector to have already announced dividend plans for 2009.

Its first-quarter dividend will be increased by 5%, and it says it will distribute around $10 billion of payouts this year. Shell said it’s able to increase dividends in a low oil price environment because of the relatively low leverage that it has employed.

Shell’s shares slipped 3.1% in afternoon London action.

Over 12 months, Shell shares have dropped close to 6%, which is better than the broader market and stronger than BP or Exxon.

Focus on biofuel

Shell isn’t looking to spend much on new investments for wind and solar energy because of the poor investment returns, according to Linda Cook, executive director for gas and power, Shell Trading, global solutions and technology.

During a conference call with the media, she said Shell’s alternative energy focus will be on biofuel. Cook defended the company’s marketing on alternative energy despite spending roughly 1% of its capital spending budget there, noting the gas-to-liquids business once represented a similarly small percentage of total spending.

Van der Veer added the company isn’t planning to get into nuclear power, citing the company’s lack of experience there.

Exploration and production chief Malcolm Brinded said that there will be a lot of competition from rivals to win oil licenses from Iraq.

Separately, Shell in a 20-F filing said Van Der Veer’s total pay, including salary and bonus, was $8.34 million in 2008.

Brinded earned $4.14 million, Cook earned $3.87 million, the retiring Rob Routs earned $5.16 million and CFO Peter Voser earned $3.59 million.

(END) Dow Jones Newswires

03-17-09 0854ET

Copyright (c) 2009 Dow Jones & Company, Inc.

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