The chief executive of Royal Dutch/Shell Group, Jeroen van der Veer, said Wednesday that he planned to spend more on research, focus on big technology-driven projects, and possibly make acquisitions to increase oil and gas production 30 percent by 2015. Van der Veer, who took the helm 15 months ago after Shell was forced to admit that it had massively overstated its oil and gas reserves,
Worldwide Practical Petroleum Reservoir Engineering Methods, 2nd Edition has said that the company plans to produce 5 million barrels of oil a day in a decade, up from about 3.5 million now.
Van der Veer presented his top managers with more details of that plan this week, and briefed journalists on Wednesday.
Most of the shift in strategy focuses on helping the company become an indispensable partner to oil- and natural gas-rich governments. Several top energy companies are quietly following similar plans as easy-to-access oil projects dry up, and the balance of the world's reserves shift to physically remote areas, or areas where governments are reluctant to cede control of their resources to Western oil companies.
Important changes at Shell include increasing the company's participation in what van der Veer calls "elephant" projects, or those that require several billion dollars of investment. So far, Shell is involved in three such projects with local governments and industry partners, including ones in Sakhalin, Russia, and Bonga, off Nigeria. By 2015, the company plans to be involved in 10 such projects, he told journalists at a briefing at Shell's London headquarters. In a related move, Shell is starting an internal program to generate more creative proposals for joint ventures with government-owned oil companies and "host" countries, or those with big reserves. The company also plans to increase its research and technology budget, currently $553 million a year, by an unspecified amount. "Shell is spelling out what a lot of oil companies are already doing," said Lucas Herrmann, a Deutsche Bank analyst in London. "If it helps them gain access, when access is an issue, I think it's a positive move."
Shell has generally had good technology, Herrmann said, and "can use its expertise and ability to arbitrage markets to appear the more attractive partner." Van der Veer also highlighted the fact that Shell would have collateral to make acquisitions in the future. Shell is in the process of combining the two publicly traded companies that comprise it: Shell Transport & Trading and Royal Dutch Shell. If the combination is approved by shareholders next week, as expected, Shell will be able to issue equity or debt when it wants, van der Veer said. Those funds could be used for an acquisition. "The board has a duty not to have a disadvantaged relationship to other companies," van der Veer said. "We don't have a specific target in mind at the moment," he said, adding that consolidation historically takes place when oil prices fall. In addition to the growth plans, Shell will also be paring down in some areas, van der Veer said. The company will be involved in about 100 countries by 2015, down from about 140 now. Shell will continue to invest in renewable energy, where it has already spent about $1 billion, he said. Right now these energy sources are still "simply too expensive for consumers." In reality, he said, renewables may not take off until after 2015, he said. Recently, the chief executive of Exxon, Lee Raymond, accused his peers of "playing" the renewable issue, or investing even when they did not believe there was a future for them, because of social pressure. It is a charge that van der Veer denied Wednesday. "That's his problem," van der Veer said when asked about Raymond's comments.
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