Shell and Texaco pact slashes costs in Europe

HUNDREDS OF UK jobs could be at risk after the oil giants, Shell and Texaco, yesterday announced their long-awaited deal merging the two companies' Europe-wide refining and marketing businesses.

The deal, which enables the pair to overtake BP as the biggest operator of petrol stations in the UK, follows a similar three-way agreement in the US with Texaco and Saudi Aramco, although it is less ambitious in terms of cost reductions being targeted. Shell yesterday talked of potential cost savings of $200m (pounds 120m) a year compared with the $1bn anticipated from the US deal.

Shares in the Anglo-Dutch group spiked up in early trading in London and Amsterdam despite Shell saying that this deal was not "the first step towards a full-blown merger". The shares later fell back as the markets succumbed to wider worries later in the day. Shell ended down 5p at 330p.

Shell yesterday admitted that some job losses were inevitable, but insisted that further details - including whether the combination resulted in closures of refining plant - had yet to be hammered out.

Analysts expect the deal to be closely scrutinised by the UK Office of Fair Trading and the European Commission, although the key stumbling block may lie in the Netherlands, where Shell already has 800 stations to add to Texaco's 557. Oil specialists Wood Mackenzie estimated combined market shares at 42.3 per cent in Holland, 28.2 per cent in Belgium, 32 per cent in Ireland and 32.7 per cent in Luxembourg.

In the UK where Shell now has 1,841 stations after taking over 328 from Gulf at the end of last year, the combined total will stand at more than 2,500. That will put them well ahead of both BP and Esso, which lead the market with more than 1,800 outlets each.

Competition in the UK retail market is a highly sensitive issue. There have been three Monopolies and Mergers Commission investigations in recent times. The Office of Fair Trading mounted its own investigation earlier this year following complaints about Esso's Pricewatch campaign, but cleared the industry in May.

Shell will be in the driving seat in what is effectively a takeover of the Texaco operations by its European rival. Shell will have 88 per cent of the joint venture, leaving Texaco with 12 per cent.

Analysts welcomed the deal as " a step in the right direction". Andrew Marshall at Robert Fleming said: "Rates of return in downstream are miserable. Anything you can do to improve profitability is welcome."

However, on Wall Street, Fadel Gheit at Fahenstock & Co criticised the decision to keep the two brands separate as indicative of dithering on the Anglo-Dutch group's part. "It is like a man and wife retaining two separate bank accounts. It eradicates most of the benefits you would expect from consolidating operations."

Shell has come under fire from the City for its failure to respond aggressively to the sharp fall in the oil price and the dramatic shift since this summer's mega-merger between rival BP and Amoco of the US.

In an attempt to rehabilitate itself in the eyes of investors, Shell last year set itself a target of 15 per cent return on capital by 2001. However, with the oil price at a 25-year low, the group is further away from the goal than last year. Shell Transport and Trading, the company's UK shareholding arm, has underperformed the FTSE by 28 per cent, while Texaco has seen its shares rise 5 per cent in spite of the oil price slide.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'