COMPANY OF THE WEEK
Sunday 20 September 1998
The world's biggest publicly traded oil company said it will vacate some offices in the UK, France, Netherlands and Germany in a move to cut costs and boost profits.
The pressure to cut costs is especially acute for Shell, which saw its refining profit fall 10 per cent in the second quarter. The company warned its return on capital employed, a measure of the industry's efficiency in making investments, will fall below its May projection of 12 per cent to 12.5 per cent and short of its 15 per cent goal.
"The write-downs will be in the downstream and chemical sectors," said Tony Alves, an analyst with Henderson Crosthwaite. "I would expect them to have write-downs on assets such as the new refineries that were completed in Thailand and are producing at low capacity."
The company's UK headquarters, Shell Mex House, in the Strand will be vacated but not the Shell Centre, its international headquarters on the South Bank. The company is to initiate a consultation process over vacating other European offices. Job losses are expected as a result.
Shell also warned it is facing a squeeze on refining, marketing and chemicals margins, and predicted that crude oil prices could stay depressed at between $12 and $16 a barrel over the next two to three years.
Lower crude oil prices will mean lower European natural gas realisations. Many long-term natural gas supply contracts have an element of the crude oil price factored into them. That means there is often a time lag for when a decline in the crude oil price is reflected in a lower price for natural gas.
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