Investments: Tighter Shell should perform

SHELL yesterday achieved the seemingly-impossible task of causing universal agreement among City analysts.

The problem for the Anglo-Dutch oil giant is that the Square Mile's finest all agreed that its third-quarter results were appalling and that the company, rather than external conditions, had to take most of the blame. They are probably right.

Net income in the quarter plunged 56 per cent to $841m (pounds 526m), worse than even the gloomiest predictions.

The company pointed to a slump in the oil price and tough market conditions in chemicals as the main culprits for the fall.

This justification has two major faults. First, these factors have been around for some time and Shell should have done something about them. Second, why is Shell more affected by bad trading conditions than rivals such as BP and Exxon which operate in the same markets?

The answer is that, unlike its competitors, Shell has done remarkably little to counter the cyclical swings of the market with cost reductions and efficiency advances. To take a domestic example, BP plans to achieve $2bn of `self-help' improvements by 2002.

Shell has only just started, with plans to shed up to 4,000 jobs from its bulging workforce announced in September. Yesterday's debacle should trigger even more draconian culls, with chemicals and refineries the likely targets. Asset write-downs are also on the way.

The prize is potentially huge. The company's assets are as good as they come in the industry and a leaner, meaner Shell would be able to unlock value for investors. The shares, which fell 21.5p yesterday to 354.5p, have come down a long way and are now trading at a discount to most of its rivals. If you believe that Shell will sharpen up, they are worth a punt.