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LONDON -- Royal Dutch Shell said that capital investment would rise to $19 billion next year from $15 billion in 2005 with spending on drilling and equipment jumping 27 percent next year, resulting from the rising costs for rigs and steel and a drive to find new reserves, reported Bloomberg News.
In comparison, BP, Europe's biggest oil company, said it would increase spending on drilling and equipment 7 percent next year, to $15 billion, according to the report.
"The increase in investment will grow and mature our resource base, increase production" and "build on our strong position in integrated gas," the CEO of Shell, Jeroen van der Veer, said in a statement, Bloomberg News reported.
The company admitted last year to lying about its reserves, saying that about one of every three barrels had been improperly recorded in its accounts, according to the report.
"If they don't invest for the future, they are going to be in trouble," Albert Thomson of Aberdeen Asset Management in London, said in the report.
Big oil projects are "becoming more complex and more expensive," he told Bloomberg News. "They are going to have to pull the rabbit out of the hat."
Analysts had expected capital spending to rise to between $17 billion and $20 billion, Goldman Sachs Group said in a note to clients.
Rising prices for labor and raw materials like steel have sent costs rising at projects including the Sakhalin-2 venture. Van der Veer said in October that new projects were starting in Oman and Brunei, with drilling achieving a 72 percent success rate, Bloomberg News reported.
"Some price pressure will be with us in the future," Peter Voser, the chief financial officer, told Bloomberg News.
Shell produced 3.2 million barrels of oil and gas a day in the third quarter, down 11 percent from a year earlier, after the loss of an average 160,000 barrels a day because of hurricanes in the Gulf of Mexico. During the period, Shell drilled 15 successful exploration and appraisal wells around the world.
Shell was targeting production of 4.5 million to 5 million barrels of oil equivalent a day by 2014, Voser said in the report.
"We are investing along our major themes of integrated gas, material new oil, existing oil and unconventional" oil including Sakhalin, the Gorgon project in Australia and Qatar gas exploration, Voser told Bloomberg News. "We expect to bring five billion barrels of oil equivalent to investment decision by 2009."
Shell's third-quarter profit rose 68 percent, rewarding investors who suffered last year because of the exaggerated reserves, a revelation that prompted fines and lawsuits and the departure of Van der Veer's predecessor.
BP said on Oct. 25 that capital spending would be about $15 billion in 2006, up from about $14 billion this year. Exxon Mobil, the world's largest publicly traded oil company, raised its 2005 spending estimate that week to $18 billion from a July target of $17 billion and $14.9 billion in 2004. Chevron, the second-largest U.S. oil company, said Dec. 8 that it planned to raise capital spending next year 35 percent to $14.8 billion. ConocoPhillips, the next largest, said Friday that its spending would rise 45 percent to $10 billion.
Surging prices raised costs at Shell's 55 percent-owned Sakhalin venture in Russia, which includes a liquefied natural gas export terminal, to about $20 billion from an original budget of $10 billion, Shell has said.
The overruns prompted the state-run gas company Gazprom, which plans to buy a stake in the venture by swapping other assets with Shell, to review terms of the deal.
Another project, the Pearl gas-to-liquids refinery in Qatar, may also suffer from rising costs, Shell has said. The cost rises are partly "because of the contractors," Abdullah bin Hamad al-Attiyah, Qatar's oil minister, said Tuesday in Kuwait. "They increase their prices."
Shell began producing crude from Bonga, an offshore Nigerian oil field, last month after delays of about two years sent project costs to $3.6 billion from an original budget of $2.7 billion.
"We set too-tough targets when we set out on the project," Shell's exploration chief, Malcolm Brinded, told reporters during a conference call Nov. 28 about Bonga. "We recognize we took on more work than we anticipated."
Shell was the oil company hit the hardest by Hurricanes Katrina and Rita this year. The Mars offshore platform, which pumped about 5 percent of its oil, will stay shut for at least eight more months of repairs, the company said in October.
Shell expects its liquefied natural gas capacity to grow at 14 percent a year through 2009.
The company expects to triple production from its Canadian oil sands to about 500,000 barrels a day over the next decade