Shell eyes return to growth as reserves jump

Italian rival Eni said on Friday it aimed to grow output by 2.5 percent per annum to 2013 while European number two BP Plc is targeting annual growth of 1-2 percent.

"Shell's strategy announcement reinforces our view that the company is at an important turning point operationally," Gordon Gray, oil analyst at Collins Stewart said in a research note.

Shell's London-listed "A" shares closed up 1.3 percent at 1,936-1/2 pence, just ahead of a 1.1 percent rise in the STOXX Europe 600 Oil and Gas index <.SXEP>.

Chief Executive Peter Voser said higher output would allow Shell to boost cashflow sharply and become cashflow neutral by 2012. Irene Himona, oil analyst at Exane said this was a year earlier than she had expected.

Shell also aims to grow output beyond 2012, although Voser said he had dropped a 2-3 percent long-term growth target.

Shell is looking to the deep water of the Gulf of Mexico, tight gas assets in North America and liquefied natural gas and coal seam gas in Australia to support its longer-term aims.

As part of this strategy, Shell and PetroChina <0857.HK> hope to agree a joint $3 billion takeover of Arrow Energy Ltd and Shell said talks with the Australia coal seam gas company were ongoing.

Previously, Shell and rivals concentrated much of its effort on expanding in Africa and Russia. Such places have big reserves but Shell has decided political risks and high taxes make them relatively less attractive than fields in the Western world.

RESERVES SUCCES

The company said that last year it added new reserves equivalent to almost three times the amount of oil and gas it pumped.

Its reserves replacement rate of 288 percent compares with levels of 133 percent at industry leader Exxon Mobil and 129 percent at BP.

It is also a turnaround from the 98 percent Shell achieved in 2008 and the 17 percent recorded in 2007.

"This was the best year for exploration in a decade," the company said.

Voser said high-cost, infrastructure-led projects, such as Shell's $18-19 billion gas-to-liquids plant in Qatar and multi-billion dollar oil sands projects in Canada, would in future only supplement the exploration effort.

Shell's production strategy has been built around such large, technology-driven projects in recent years.

Nonetheless, Shell said it will have to spend $25-$30 billion/year out to 2014 to achieve its growth -- the largest capital investment or capex programme in the industry.

Shell's focus on building production will also see it reduce its downstream footprint.

The company said it planned to exit 35 percent of its retail markets, and repeated plans to sell 15 percent of its world-wide refining portfolio.

(Additional reporting by Rosalba O'Brien; Editing by Mike Nesbit and Simon Jessop)