Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) hopes to increase production to 4 million barrels of oil equivalent (BOE) per day through by 2017 or 2018, a 25% increase over 2011 production of 3.2 million BOE per day. The company disclosed these details as part of an updated growth plan released in conjunction with its fourth quarter of 2011 earnings report. Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

2012 Capital Spending
Royal Dutch Shell has established a $30 billion capital spending plan for 2012, with 80% of the funds destined for various upstream products in its portfolio. The company has a number of exploration and development initiatives planned in its oil and gas portfolio to generate the promised growth. (For related reading, see What Determines Oil Prices?)

Exploration
Royal Dutch Shell has allocated $5 billion in exploration spending in 2012, up by 35% from the $3.6 billion spent last year. The funds will be used for unconventional liquids rich plays in the United States, as well as higher risk exploration in frontier areas.

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Unconventional Plays
Royal Dutch Shell has an immense worldwide position in various tight gas and shale plays in both North America and International areas. The company plans to spend $4 billion to develop these plays in 2012 and projects that production from liquids rich shale plays may reach 250,000 BOE per day by 2017.

Integrated Gas
Royal Dutch Shell has made large investments in liquefied natural gas (LNG) projects over the last few years and plans to continue this in 2012. The company has budgeted $5 billion in 2012 to advance these projects. All of this spending will be for LNG projects and associated natural gas fields in Australia.

Deepwater Spending
Royal Dutch Shell has an active deepwater development program in the Gulf of Mexico, Brazil and Malaysia, and plans to spend $4 billion in 2012 on seven projects. The company estimates that the productive capacity of these projects will be 250,000 BOE per day.

One deepwater development under construction by Royal Dutch Shell is the Mars-B project in the Gulf of Mexico. The project will have a 100,000 BOE per day capacity and when complete will produce from several different nearby fields. BP (NYSE:BP) is also involved with this project and has 28.5% ownership stake.

Large and complex projects like the Mars-B development provides billions in contracts for oil services companies. McDermott International (NYSE:MDR) and Aegion Corporation (Nasdaq:AEGN) have both received contracts over the last six months to build pipeline and other infrastructure to enable production here.


Cash Flow
Royal Dutch Shell reported $136 billion in cash flow from operations over the four year period ending 2011, and expects this to increase from 30 to 50% over the next four years. The company intends to share this increase with shareholders and announced a boost in its dividend. Royal Dutch Shell will pay a dividend of 43 cents per share in the first quarter of 2012, up 2% from 2011.

Haynesville Shale
One area that was not mentioned by Royal Dutch Shell in its updated growth disclosure was the company's plans for the Haynesville Shale. The company has 350,000 net acres under lease and is involved in an area of mutual interest here with Encana (NYSE:ECA).

Many other operators have reduced drilling in the Haynesville Shale and other dry gas plays due to falling prices for natural gas. Royal Dutch Shell has worked diligently to reduce costs since entering the play and has cut drilling and completion costs by 45 to 50% since 2008. Even with these cuts, it is not clear if development in the Haynesville Shale is economic for the company in the current environment. (Learn why natural gas is playing a larger role in the energy industry. For more, see A Natural Gas Primer.)

The Bottom Line
Royal Dutch Shell's new growth plan calls for $30 billion in capital spending in 2012, and tens of billions more over the next five years. The level of spending required shows how difficult it is to generate production growth in the energy industry.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.