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CERAWeek: Shell's US Shale Output Plans Prioritize Oil Over Natgas

 HOUSTON, March 8 (Reuters) - Royal Dutch Shell Plc is focused on increasing its U.S. shale operation's oil production while slowing investment in lower-margin natural gas, an executive said on Thursday.

 The Anglo-Dutch company aims to boost its overall shale production by 200,000 barrels of oil equivalent per day (boe/d) to 500,000 boe/d between 2017 and 2020, mostly in the United States with some production in Argentina.

 Although the shale business has yet to generate a profit, it is expected to do so next year, Greg Guidry, who heads Shell's shale operations, told Reuters on the sidelines of the CERAWeek energy conference in Houston.

 Shell, like Exxon Mobil Corp and Chevron Corp , aims to make shale production a driver of growth in the next decade. But today most of its output is natural gas, where profit margins are lower.

 As a result, around 85 percent of Shell's shale budget for at least the next two years will go toward new oil resources, particularly in the Permian oilfield of West Texas and Canada's Duvernay Basin, Guidry said.

 "We're not spending very much at all on the dry gas assets," Guidry added. "Liquids is growing very rapidly because that is where our capital is going."

 After years of faltering performance and increased spending in shale, Shell has in recent years transformed the business to adapt to the sharp drop in oil prices since 2014. Shale oil wells today can be profitable with oil prices above $40 a barrel and gas above $2 per million British thermal units, Guidry said.

 Shell has earmarked between $2 billion and $3 billion per year, roughly 10 percent of its capital expenditure, for shale until 2020.

 Gas production will remain largely flat in the coming years and would be boosted in Canada's Montney basin once Shell decides to go ahead with a major natural gas liquefaction plant in British Columbia known as LNG Canada, Guidry said.

 In its eastern U.S. Appalachia gas fields, an increase in output would require construction of pipelines to deliver fuel to demand hubs, he added.

 Shell also is advancing shale production in Argentina's Vaca Muerta basin and will make a decision on developing a production well later this year, Guidry said.

 Shell's 2016 acquisition of BG Group in 2016 boosted the share of natural gas to 50 percent of its global fossil fuels output and made it the world's largest natural gas trader.

 (Reporting by Ron Bousso and Ernest Scheyder in Houston Editing by Gary McWilliams and David Gregorio)

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