Shell switch in strategy fails to win support of investors

Shell, the Anglo-Dutch oil giant, warned yesterday that production is likely to remain flat for the next five years as it accelerates the disposal of unwanted assets and rebuilds its battered reserves portfolio with a $15bn-a-year investment programme.

Shell, the Anglo-Dutch oil giant, warned yesterday that production is likely to remain flat for the next five years as it accelerates the disposal of unwanted assets and rebuilds its battered reserves portfolio with a $15bn-a-year investment programme.

The eagerly-awaited strategic review from the crisis-torn oil major disappointed investors and Shell shares fell more than 3 per cent to close at 418p. Shareholders had been hoping for news on a stock buy-back programme.

Shell, which is scheduled to unveil an overhaul of its corporate structure in November, said it planned to boost expenditure on its upstream businesses to $11.5bn a year. Spending on exploration activity will rise to $1.5bn - an increase of one-third on what the company was investing four years ago.

The company is also aiming to raise $10bn to $12bn over the next two years by speeding up the disposal of unwanted assets, including interests in mature, low-growth oil and gas fields.

Other assets being sold off include Basell, its joint chemicals venture with the German company BASF, and its worldwide LPG distribution and marketing business which, it emerged yesterday, has been the subject of an unsolicited approach from an unnamed buyer.

However, production is expected to plateau at about its current level of 3.8 million barrels a day until 2009 when Shell hopes to begin reaping the benefits of major fields such as Oman Lange in the North Sea and the Sakhalin gas development in Russia.

In a tacit admission that Shell's strategy had been fundamentally wrong even before it was plunged into chaos by the devastating reserves downgrade in January, the chairman, Jeroen van der Veer, said that the company had to adopt an "enterprise first" culture.

One of the main objectives, he said, was to increase its upstream activity in oil and gas exploration. Malcolm Brinded, the head of exploration and production, said Shell aimed to "unlock" 13 billion barrels of oil from a total resource base of 60 billion barrels over the next five years in an effort to improve the rate at which it is replacing production.

He said that Shell's reserves replacement ratio, one of the key measures of an oil company's performance, would rise from the 60 to 80 per cent of this year to more than 100 per cent. However, a large part of the improvement will come from re-booking the 4.5 billion barrels of reserves that Shell was forced to recategorise in January. The underlying replacement ratio will be nearer to 70 per cent.

Mr Brinded shrugged off fears that, in disposing of unwanted fields, the company might repeat its Indian gaffe when it sold its interests in Rajasthan for a pittance and the buyer, Cairn Energy, subsequently struck black gold, adding £2bn to its market value. He said that prospects in Rajasthan were "not material" to the group, arguing that the oil found by Cairn only amounted to 5 to 10 per cent of the reserves Shell booked every year.

Mr van der Veer refused to be drawn on the decision of Shell's ousted former chairman, Sir Philip Watts, to take the Financial Services Authority to a tribunal over its report into the reserves debacle or the prospect that he himself may yet end up in court, or even jail. "I am not concerned about that at all. I can look in the mirror," he said.