Shell affirms "too uncertain" outlook for oil industry
Wednesday, March 18, 2009
* Links Niger delta crisis, falling oil prices to low output
By Taiwo Hassan, with Agency Reports
CITING falling oil prices and crisis in Nigeria's Niger delta region, Anglo Dutch oil giant, Shell, has conceded that the industry's outlook has become "too uncertain" for long term projections.
Consequently, the company has come up with a medium-term production growth plans and stated that its dividend would rise by over one per cent this year, even as it affirmed flat oil and gas reserves at the end of last year.
Essentially, the company plans to increase production by two to three per cent yearly, over the next four years, declining to state specific output target for Nigeria.
Shell's Chief Executive Officer, Jeroen Van der Veer, made these disclosures yesterday in London, at an industry conference, where he told the audience that the crisis in the Niger Delta region forced the company to shut in about 180,000 barrels per day of oil production in Nigeria.
Van der Veer said the lost production was "due to the security problem" in the southern oil-rich Niger Delta.
Besides, he stated that the company's output has been falling for six years, noting that big investments in low-decline projects will allow it to meet its growth target in 2009, through 2012.
Shell's crude output has been under pressure this year as about 20 per cent of its oil production is from Organisation of Petroleum Exporting Countries (OPEC) members where quotas have been slashed by about 14 per cent.
However, Shell said the expectation of cost reductions in the industry and the uncertain economic outlook, which has contributed to a $100 barrel drop in crude prices since July, meant it may hold off from starting some new projects.
Shell has delayed start up of key projects, including the expansion of the Motiva Port Arthur refinery, the Perdido platform in the Gulf of Mexico and the Forcados Yokri and Bonga NW projects in Nigeria.
Consequently, the company said it was impossible to affirm its earlier goal of two per cent to three per cent growths in the long term.
"We are planning on the basis that the downturn could last more than a year," Van der Veer said.
The closure means revenue losses for Nigeria, the world's eighth-largest crude exporter, which depends on crude exports for more than 90 per cent of its foreign income.
An official at Shell in Nigeria said on Monday that the company has made preparations to evacuate its workers from the Niger Delta, after a militant group issued a warning asking the company to quit the region or risk more attacks.
Since taking over in 2004, Van der Veer has steered Shell toward unconventional hydrocarbons such Canada's oil sands and expensive gas projects such as a gas-to-liquids plant in Qatar.
Such projects need high costs to be profitable. Crude squeezed from Alberta's tarry oil sands, for instance, costs $38 per barrel to produce.
But the oil firm is also believed to be considering measures that will allow it to do so while continuing to invest $31 billion on a string of oil and gas projects around the world.
Shell is under investigation by the United States of America (USA) for violations of the country's Foreign Corrupt Practices Act, according to the company's yearly general report.
Chief Financial Officer, Peter Voser, who will replace Van der Veer in July, said this was an extension of a previously disclosed probe.
The case involves Shell's use of a Swiss-based freight forwarding company called Panalpina, which is currently helping USA's Department of Justice in relation to suspected bribery in Nigeria, Kazakhstan and Saudi Arabia.
In last year's annual report, Shell only said it had been contacted by USA authorities in relation to the case.
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