UPDATE 4-Shell says production to grow, reserves flat

Tue Mar 17, 2009 1:36pm EDT

* Production seen up 2-3 percent/yr 2009-2012

* Reserves replacement of 98 percent

* Will pay out $10 bln in dividends this year

* Delays key projects

* Faces SEC, DoJ bribery probe

(Adds detail, updates shares)

By Tom Bergin

LONDON, March 17 (Reuters) - Royal Dutch Shell Plc said it would increase production by a healthy 2 to 3 percent annually over the next four years but said the outlook for the industry was too uncertain to affirm longer-term targets.

The world's second-largest non-government controlled oil company by market value, whose output has been falling for six years, said big investments in low-decline projects will allow it to meet its 2 to 3 percent annual growth target in 2009 through 2012.

Some analysts had predicted Shell would cut the target, which compares with BP Plc's goal of 1 to 2 percent growth over the period.

However, Shell said the expectation of cost reductions in the industry and the uncertain economic outlook, which has contributed to a $100/bbl drop in crude prices since July, meant it may hold off from starting some new projects.

Consequently, the company said it was impossible to affirm its earlier goal of 2 to 3 percent growth in the long term.

"We are planning on the basis that the downturn could last more than a year," Chief Executive Jeroen van der Veer told a press conference.

Shell's London-listed "A" shares closed down 1.3 percent at 1,619 pence, compared to a 0.9 percent fall in the DJ Stoxx European oil and gas sector index.

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/barrel to produce.

RESERVES FLAT

The Anglo-Dutch oil major performed better at adding new reserves in 2008 than some analysts expected, with a reserves replacement rate of 98 percent, as measured under Securities and Exchange Commission (SEC) rules, the spokesman said.

This meant Shell matched almost all its production with new finds in the year, although its performance lagged some rivals including BP.

Shell said it would pay out $10 billion in 2009, which is in line with the 5 percent rise in dividends per share announced in January, easing investor fears that the payout may be cut.

Investors like the oil majors for their generous dividends, but fear low crude prices may put these under pressure.

The company does not plan share buybacks, on which it spent over $3 billion in 2008.

After selling a number of refineries and fuel retail operations in Europe and Africa in recent years, Shell said it could sell further refining assets in Germany and New Zealand representing 200,000 barrels per day capacity.

Shell is under investigation by the SEC, the U.S. financial regulator, and the U.S. Department of Justice (DoJ) for violations of the U.S. Foreign Corrupt Practices Act, Shell said in its annual report.

Chief Financial Officer Peter Voser, who will replace van der Veer as CEO in July, said this was an extension of a previously disclosed probe into potential payments made by Swiss-based freight forwarding firm Panalpina on behalf of Shell to customs officials in Nigeria.

Panalpina has said it is helping the DoJ 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 U.S. authorities in relation to the case.

PROJECTS DELAYED

Shell has also delayed start-up of key projects, partly to retender contracts so it can cut costs.

Start-up of the Perdido platform in the Gulf of Mexico has been pushed back to the beginning of next year from this November, exploration boss Malcolm Brinded said.

The Forcados Yokri and Bonga North West projects in Nigeria which were due to come onstream sometime during 2010 or 2011 will now come onstream in 2012 or later. Bonga North West is being re-tendered, Brinded said.

The Motiva Port Arthur expansion is now expected to be completed in 2012 or later, rather than 2010 as earlier planned.

The Pearl GTL plant in Qatar could also be delayed with van der Veer saying this was expected onstream "at the very end of 2010 or early 2011" rather than late 2010 as earlier targeted.

Shell also said it did not plan to make large investments in wind or solar energy in the future and did not expect hydrogen to play an important role in energy supply for some time.

"We do not expect material amounts of investment in those areas going forward," Linda Cook, head of Shell's gas and power unit told reporters at a news conference on Tuesday.

"They continue to struggle to compete with the other investment opportunities we have in our portfolio," Cook said of solar and wind.

(Editing by Jon Loades-Carter and Jason Neely)