Royal Dutch Shell will have to invest $4 billion more than previously planned in the coming year, as costs soar and the firm tries to turn around its industry-lagging record on finding oil.
Anglo-Dutch Shell, the world's third-largest listed oil firm by market capitalisation, said today its capital investment budget for 2006 would be $19 billion, compared with earlier plans of around $15 billion.
Shell said in July that its medium-term guidance for capital expenditure of $15 billion per annum after 2005 was no longer valid, and analysts expected the firm to raise its budget to between $17 and 20 billion per year.
Shell said in a statement that $15 billion would be invested upstream, including $2 billion in exploration, and that $4 billion would be invested in downstream activities, where tightness in refining capacity has helped send oil prices to record highs.
Shell said the $15 billion upstream budget excludes Shell's minority share of Sakhalin, a large oil and gas project off Russia's east coast, where costs have doubled to $20 billion.
Shell has agreed in principle to sell part of its 55 per cent stake in this project to Russia's Gazprom.
Approximately 25 per cent of the increase in upstream capital investment in 2006 relative to 2005 is due to price inflation, Shell said.
Some industry executives have put oilfield-services inflation at around 10 per cent per annum as demand for rigs and input costs such as steel have risen sharply.