Wednesday, Nov 25, 2009

(This item was originally published Tuesday.) 


 
   By Guy Chazan 
   Of THE WALL STREET JOURNAL

Royal Dutch Shell PLC's (RDSB, RDSB.LN) two mammoth natural gas projects in Qatar will increase the company's cash-flow by $4 billion a year when they start in 2011 and give a big boost to the company's output, Chief Executive Peter Voser said Tuesday.

Speaking to reporters in London, Voser said the Pearl gas-to-liquids, or GTL, plant and Qatargas 4, a liquefied natural gas development, would deliver 350,000 barrels per day of oil, or some 10% of Shell's current output.

"These projects combined will have a substantial impact on Shell's world-wide production [and] generate sustained positive cash flows for decades to come," he said. Income from the Qatar ventures will underpin Shell's next wave of new investments, he said.

He was speaking after Shell took analysts around Pearl and Qatargas 4, two projects that are vital to the company's growth strategy. With a price tag of $18 billion to $19 billion, Pearl--which will convert Qatari natural gas into diesel and other high-value oil products--is the biggest single project in the global oil industry and is also the world's largest GTL development.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

Shell hopes the projects will mark a turning point in the company's fortunes after years of declining production. Shell's output has fallen by as much as 15% since 2005 while its costs have risen by 40%, according to Deutsche Bank.

However, Shell also said it was delaying the launch of Qatargas 4 by up 10 months, from the start of 2010 till the end of the year. Voser said the timetable had been disrupted by delays at other LNG projects in Qatar involving other supermajors including Exxon Mobil Corp. (XOM), Total SA (TOT, FP.FR) and ConocoPhillips (COP).

Hit by scandal in 2004 related to the misreporting of its reserves, Shell has endured a tough few years. It was buffeted by political troubles in Russia, where a Kremlin-controlled gas company muscled into one of its flagship natural gas projects, while its Nigerian operations were badly disrupted by militant violence.

The company has sought to turn itself around by investing in a string of expensive long-life assets, such as Pearl, a large oil sands venture in Canada and LNG plants in Australia and Qatar.

Some questioned that strategy last year when the price of oil plummeted from its record high of $145 a barrel to around $30. Shell was forced to take on more debt to cover its spending plans and pay its dividend, but with oil now trading between $75 and $80 a barrel, the company feels more secure. "With oil at $80 a barrel, I don't need to borrow," Voser said.

But some analysts said the company may still struggle to keep investments flowing and sustain its dividend in the next couple of years, while it waits for production to ramp up. "Overall the Royal Dutch Shell investment looks like it is going to pay off but 2010 could still be difficult," said Keith Morris at Evolution Securities, a London brokerage firm.

Voser also stressed that Shell wouldn't be affected by the supply glut now forming on natural gas markets, which has affected spot prices for LNG. He said some of Qatargas's LNG volumes were initially destined for the U.S., where gas prices have fallen nearly 30% over the last year: they have now been diverted to China and Dubai, which are short of gas. Shell is also working on new supply routes to countries like Pakistan.

He said Shell wasn't exposed to the low spot price of LNG because 90% of its contracts were long-term and linked to the price of oil. He said gas demand, though weak now in the aftermath of the recession, will grow stronger in the medium to long term - largely because gas produced fewer carbon emissions than other fossil fuels such as coal and oil.

-By Guy Chazan, The Wall Street Journal; 44-20-7842-9216

(END) Dow Jones Newswires

25-11-09 0354GMT