Shell plans production expansion as profits rise

Peter Voser, Chief Executive of Shell says ''2012 is not going to look good on the refining side''

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Royal Dutch Shell has said it will launch a major investment drive in an effort to boost falling production.

The oil giant said it would spend $30bn (£19.4bn) on new oil and gas projects this year, compared with $24bn in 2011.

The announcement came as Shell reported a rise in profits even as production fell, thanks to higher oil prices.

For the final three months of 2011 net income was $6.5bn, up from $5.7bn a year earlier.

For the full year, net income was up more than 50% to $28.6bn.

Despite improved profits, the company said it had been hit by falling refining margins across the industry.

Oil prices during the quarter were more than 20% higher than a year earlier.

However that was partially offset by a loss of $278m on its downstream operations, which includes its refining and petrol stations businesses.

"Our fourth quarter results were impacted by a sharp downturn in industry refining margins and North American natural gas prices," said Shell chief executive Peter Voser.

"The global economy and energy markets are likely to see continued high volatility. Despite the near-term uncertainties, Shell's focus remains on through-cycle investment for sustainable growth."

Production increase

Shell's latest strategic plan is targeting $30bn of new investment this year.

The company is trying to increase oil and gas production which, aside from a 5% rise in 2010, has fallen every year since 2002.

It said 80% of the new investment would be focused on upstream operations, designed to increase oil and gas production, especially from unconventional sources such as oil and gas shale.

Shell will also increasing spending on exploration for new oil reserves - in places such as the Arctic - by 35% to $5bn.

Production from Shell's oil and gas fields in 2011 fell 3% compared with the previous year.

However the company warned that that the economy remained "highly volatile" with "political uncertainties, combined with challenges in debt markets adding to price and cost volatility".

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