Voser predicts a brighter future

THERE was little change in Peter Voser’s message to shareholders yesterday: stick with us, it will be alright in the end. Updated targets and forecasts suggest he’s correct. Shell thinks exploration and production volumes will grow to 3.5m barrels of oil equivalent per day by 2012, a rise of 11 per cent on 2009. That’s more than other oil majors, with the likes of BP and Total expecting E&P volumes to grow between three and six per cent in the same period.

Meanwhile, Shell is taking radical action to shrink its oversized downstream business. It will reduce its global refining capacity by 15 per cent and shut 35 per cent of its petrol stations in poorly performing markets. The latter move is particularly bold, and shows Voser is serious about catching up with BP’s more aggressive cost cutting programme.

Shell is also predicting vastly improved operating cash flows, something investors have long been calling for: it expects cash flow to jump 50 per cent by 2012 if the oil price averages $60-a-barrel, while an $80 price tag would see them jump 80 per cent.

That would mean that Shell would be free cash neutral after the dividend by 2012, assuming net capital expenditure of around $25bn in 2012. The firm will peg rises in the progressive dividend to cash flow and earnings – not inflation – meaning dividends look certain to increase. Of course, investors are going to have to wait for all this. But it will be worth it in the end.