Royal Dutch Shell (NYSE:RDS) outlined the progress the company is making on the three-year strategic plan that began in 2010, seeking to reassure investors on the macro environment for energy demand over the next generation. These details and other information on its operations were disclosed during a strategy update given by the company.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Energy Overview
The management of Royal Dutch Shell believes that economic growth in non-OECD countries over the next generation will generate significant growth in long-term demand for energy. This growing energy mix will continue to be dominated by hydrocarbons despite the push for alternative forms of energy.

While the industry is tilting toward the development of oil and other liquids at the expense of natural gas, Royal Dutch Shell is still a firm believer in the future of natural gas and expects strong growth in demand here as well.

This long-term belief in natural gas is based on the commodity's status as the cleanest of all fossils fuels and its abundant presence in most parts of the world.

Royal Dutch Shell expects 50% of its production to be natural gas in 2012, and has conventional and unconventional exploration and development underway, as well as liquefied natural gas and gas to liquids projects.

Capital Investment Upstream
Royal Dutch Shell is in the midst of a four year capital spending program of approximately $125 billion, with more than 80% of this budget devoted to the upstream segment as the company works to develop its massive resource base.

Royal Dutch Shell expects twenty new upstream projects to start up before 2014, with 800,000 barrels of oil equivalent (BOE) per day of new production from these projects.

In Canada, an expansion at the Athabasca Oil Sands Project has reached full capacity of 100,000 barrels per day. Royal Dutch Shell owns 60% of this project, and Chevron (NYSE:CVX) and Marathon (NYSE:MRO) each own 20%.

In the Middle East, the Qatargas 4 LNG project also reached maximum capacity in 2011, and the Pearl gas to liquids project in Qatar is also ramping up according to plan. These three projects added 170,000 BOE per day of production in the second quarter of 2011 and are expected to add 400,000 BOE per day at the peak.

Efficient Profitability Downstream
Royal Dutch Shell plans to remain involved in the downstream area, which includes refining and marketing and various other businesses. The company's goal here is to find profitable opportunities across its suite of businesses while operating as efficiently as possible.

Many other integrated oil companies have decided to shed downstream operations through spinoffs or initial public offerings. Conoco Phillips (NYSE:COP) was the latest to announce such a plan and will become a pure upstream exploration and production company, separating its downstream businesses.

Royal Dutch Shell cut $2.5 billion in costs here in 2009 and 2010, and is targeting an additional $1 billion in cuts in the 2011 and 2012 timeframe.

RDS is also looking for areas to grow in the downstream, and the company has found an opportunity in Brazil where it is involved in retail marketing and biofuels. The company is involved in a joint venture with a Brazilian operator and has 4,500 retail sites in that country and a 20% market share.

The Bottom Line
Royal Dutch Shell has a detailed strategy in the upstream and downstream segments, and appears to be progressing well in implementing company goals. One question that investors should consider is whether the gloomy outlook for the economy threatens the macro assumptions underpinning the company's huge investment through 2014. (For additional reading, take a look at Peak Oil: Problems And Possibilities.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    The Biggest Risks of Investing in Netflix Stock

    Examine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
  2. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  3. Stock Analysis

    What Seagate Gains by Acquiring Dot Hill Systems

    Examine the Seagate acquisition of Dot Hill Systems, and learn what Seagate is looking to gain by acquiring Dot Hill's software technology.
  4. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  5. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  6. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Stock Analysis

    3 Solar Stocks to Add to Your Portfolio

    Understand the growth and challenges of the renewable energy market and its success in 2015. Learn about the top three energy stocks to add to a portfolio.
  10. Investing News

    Glencore Shares Surge in Hong Kong

    Shares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!