Shell expects Corrib to proceed despite delays and higher costs

ROYAL DUTCH Shell still expects the Corrib project to go ahead, but with higher costs and a delayed timeframe, its chief executive, Peter Voser, said.

In its annual strategy briefing, Shell said: “The Corrib gas project is currently under development, and is largely complete [pending a final decision from the Irish planning board on an application for a 9km onshore pipeline].”

Shell, which is the operator of Corrib and has a 45 per cent stake in the project, expects the project to come online in 2012-2013 rather than in 2010-2011 as intended.

Shell also said it will hold its dividend unchanged for this year and possibly longer, despite a forecast of strong growth in production and cashflow by 2012. It said it expected oil and gas production to grow 11 per cent during 2009-12. This is likely to be the fastest rate of growth of any of the main western oil companies, helped by new projects in Qatar and Canada.

It added that if the price of oil remained at about $80, its cash flow from operations would rise by 80 per cent over the same period.

However, Mr Voser also warned of “some tough times ahead”.

Its 2009 annual report, also released yesterday, showed Linda Cook, the former head of the gas and power division, was given a $7.6 million severance payment.

Shell said it had changed its dividend policy from increasing the payout in line with inflation to raising it “through time in line with our view of the underlying business earnings and cashflow of the group”. Simon Henry, the chief financial officer, said weak gas prices and refining margins, and the risk of a fall in the oil price, were reasons not to raise the dividend, although “we don’t see any need to cut it”. He indicated that debts were likely to rise further this year to finance a capital spend of $28 billion.

By 2012, it expects a stronger financial position, with cashflow 50 per cent higher than in 2009 with oil at $60 per barrel, or 80 per cent higher with oil at $80.

Mr Henry said that “assumes a more normalised environment for downstream [refining] and natural gas”. A resumption of dividend growth, he said, would depend on the business environment.

Shell’s production is set to rise after seven consecutive years of decline. This will be due partly to its Pearl project, which converts gas to liquid fuels, and its Qatargas 4 liquefied natural gas plant - both in Qatar.Staffing would be cut by 2,000 by the end of 2011, it added. – (Copyright The Financial Times Limited 2010)