LONDON, Oct 31 (Reuters) - Cutbacks in oil companyinvestment to fund higher shareholder payouts will damageinvestors' long term interests and encourage boom-bust oilprices just as such actions did at the turn of the century, atop Shell executive said on Thursday.
Wading into a fierce argument over capital allocation asfinding and development costs rise in the face of a weakeroutlook for oil prices, Shell's chief financial officer, SimonHenry, said the score in football terms was "1 nil" to the shorttermists, but "we are five minutes into not just one game, but apremier league season."
Shell, the world number-three among investor-controlled oilcompanies, stands out among its European peers as one companywhose net spending is still rising.
Henry said capital expenditure may peak this year and assetsales will need to be stepped up to keep cash flowing in,pointing to $11 billion of dividends and $5 billion in sharebuybacks as evidence of a commitment to shareholder returns.
But at a forecast $45 billion, that 2013 investment spendhas gone up another $5 billion from past guidance, and hasstayed stubbornly high as other companies have reined theirspending in.
"What we spend today doesn't normally deliver value for fiveyears or more," Henry said, citing the Libra field offshoreBrazil and the Carmon Creek project in Canada - both investmentssigned off in the past few weeks, as examples of projects thatwill deliver in the 2020s and 2030s.
"Those who are cutting capex are being very highlyrewarded... 10-15 years ago the entire industry cut capex,obsessed by returns and with the market egging them on, butcutting investment is one of the reasons we've got a $110 oilprice," he told reporters after third quarter results.
Shell was among the cutters last time around, sackingengineers and pulling back from investments to an extent thatmade it hard to respond to an upturn. It ended the period with adamaging reserves downgrade in 2004 that took years to recoverfrom.
Henry recalled taking "significant criticism" for kickingoff a big investment cycle between 2006-2009, "but there was abit less criticism as those projects came on line."
"Cutting investment is in nobody's long term interest," hesaid. "If we take criticism for the time being so be it... It'sgreat to have a discussion of future projects - I'm not hearingquite so much of that in the company's who are cutting."
BP this week took steps to reduce its spendingprojections for the next couple of years and pledged extrareturns for shareholders by funnelling asset sales back intoshare buybacks. It has scaled back its ambitions for anextension to its Mad Dog project in the Gulf of Mexico, andplans to sell more assets and look at delaying less lucrativeprojects.
"Shareholders have been very patient with BP," BP ChiefExecutive Bob Dudley explained to staff in an internal memo.
