Shell to end production drop on Qatar projects

Royal Dutch Shell Plc, Europe’s largest oil company, is set to reverse its decline in production after projects in Qatar come on stream, Sanford C Bernstein & Co said.

In a note to investors today, Oswald Clint, a London based analyst at Bernstein, said: “After a decade of declining production, Shell is finally entering a sweet spot for production growth."

Shell also has “probably the best portfolio” of pre- final investment decision projects around, “and a strategy refocused on the exploration and production business, with plenty of interesting exploration options to add to reserves.”

The Anglo-Dutch company is targeting hard to reach rock formations in Australia, China and the US, as well as projects in Qatar, to boost production growth. As much as 40 percent of Shell’s capital spending in the next few years has been earmarked for the Asia-Pacific region.

This year has already seen startups in the Gulf of Mexico and Brazil with Perdido and the BC-10 project, while the Sakhalin project in Russia has beaten production goals.

Shell spent $19 billion, triple the original estimate, to build the world’s largest gas to liquids plant in Qatar. Shell’s Pearl project will churn out 140,000 barrels a day of liquid fuel and 120,000 barrels equivalent of ethane gas and condensate, a by-product that’s like a light crude oil.

The company also has a 30 percent stake in Qatargas 4, part of the world’s largest LNG complex, due to start exports in 2011.

Peter Voser, in his second year as CEO, expects to double cumulative asset sales to as much as $8 billion by the end of 2011, he said in July.

Cost savings of $3.5 billion beat an earlier target by about 15 percent and were completed early, resulting in 7,000 job reductions 18 months ahead of schedule. Voser is assessing more than 35 projects that may add 8 billion barrels of oil equivalent, boosting production until 2020.

Shell expects an 11 percent production increase in 2009 to 2012 with a forecast of 3.5 million barrels of oil equivalent a day in 2012. Shell, which has been adding more gas than oil to its resources since 2005, expects the share of gas as a proportion of total output to rise to 52 percent in 2012.

In the note, Clint said: “The company is set to enter a period of rapid production growth in 2011 and 2012 and, combined with leverage to oil and gas prices, we expect this to drive up cash flow per share and earnings.”

He has an “outperform” rating on the stock.