Royal Dutch Shell’s expansion in Canada’s controversial tar sands will be “very much slower” than in recent years, the company’s new chief executive has said, as the group makes a strategic shift away from high-cost “unconventional” oil production.
Peter Voser, who took over at Europe’s second-largest oil and gas group in July, told the Financial Times that Shell now planned to rely more on conventional oil and gas reserves for its future growth.
He also cast doubt on the merit of corporate takeovers, saying “those who buy normally lose”.
The shift back to conventional oil and gas represents a break from the strategy of Jeroen van der Veer, Shell’s previous chief, who planned a steep rise in the share of the company’s production coming from unconventional resources.
It represents a vote of confidence in Shell’s ability to find new oil and gas fields, which has in the past been one of the group’s weaknesses.
The decision is likely to be welcomed by environmental campaigners and some investors, who have worried about the potential impact of tighter controls on pollution in Canada.
Shell is raising its tar sands production with the $14bn (£8.7bn) expansion of its 60 per cent owned Athabasca Oil Sands Project to a capacity of 255,000 barrels per day, due to be completed next year.
However, Mr. Voser said the company had “clearly scaled down” its earlier plans for a further rise to 700,000 b/d.
“Over the past two years and certainly over the past six to eight months, I’ve taken the pace out of that because we have enough other growth opportunities,” he said.
He added that soaring costs in the tar sands region of Alberta had made investment there less attractive.
Other companies have taken a similar view, although last week ConocoPhillips of the US and Total of France said they would proceed with an expansion of their tar sands joint venture because costs had fallen from their 2008 peak.
Mr. Voser said that after restructuring and heavy investment in exploration, Shell had become more successful in finding new oil and gas reserves.
The company’s failure to replenish its reserves adequately in the 1990s lay behind the reserves misreporting scandal of 2004, and prompted Mr. Van der Veer’s shift towards unconventional resources.
Conventional oil and gas reserves in areas such as the Gulf of Mexico, the north-west coast of Australia and Kazakhstan are being looked at to provide growth after 2012.
Shell, which has slipped behind BP as Europe’s largest oil company by market capitalization, reports full-year profits on February 4. These are expected to be hit hard by the squeeze on its refinery margins.