Shell Eyes North American Growth - Analyst Blog

At an investor presentation, energy major Royal Dutch Shell Plc. (RDS.A) unveiled its North American business strategy. In particular, the company outlined plans to increase production in the region (including gas, Canadian oil sands and deepwater oil) by 40% to 1 million barrels of oil-equivalent per day (MMBOE/d) by 2014. The plan is part of The Hague-based oil producer’s goal to achieve annual worldwide volumes of 3.7 MMBOE/d in 2014, up from 3.15 MMBOE/d in 2009. To help fund its ambitious growth plans, Shell is slated to invest $10 billion annually in North America over the next four years

Notwithstanding BP plc’s (BP) Gulf of Mexico (“GoM”) oil disaster and weak natural gas prices that have raised questions over the industry’s outlook in North America, Shell remains enthusiastic about the region and intends to make it the focus of the company’s global expansion in the coming decade. In this connection, the company gave final approval to an investment in a deepwater oil platform in the GoM. Known as the ‘Mars B’ platform, it will have the ability to pump up to 100,000 barrels of oil a day when it comes online sometime after 2014. Shell has a 71.5% operated interest in the platform, with the other partner being BP plc.

The Anglo-Dutch supermajor also updated about some of its large long-term investment projects that should guarantee upstream growth for the next few years. In Canada, Shell’s 60% owned Athabasca Oil Sands Project is adding 100,000 barrels per day of production, while the group’s Pearl gas-to-liquid fuels and Qatargas 4 liquefied natural gas projects in Qatar are on their way to start up.

Beyond these projects, Shell’s future growth will be driven by the North American ‘tight gas’ plays. An unconventional source of energy, tight gas is similar to shale deposits and is locked in rock formations that must be cracked open to exploit natural gas reserves. Tight gas reservoirs can be very large, and production can last for decades. Shell believes that its North America tight gas production could double during the 2009 – 2015 period, potentially reaching 400,000 barrels of oil equivalent per day.

Royal Dutch Shell, which currently retains a Zacks #2 Rank (short-term ‘Buy’ rating), owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.