Shell strives to shore up profits

Rivals and a low crude oil price have finally taken their toll, writes Reed Landberg

THE ROYAL Dutch/Shell Group could tomorrow announce as much as $5bn (pounds 3bn) in charges in order to write down assets it will sell or close to cope with crude oil prices at their lowest level in 12 years. The world's biggest publicly traded oil company will brief New York and London on its latest steps to trim staff and speed a decision-making process encumbered by a leadership-by-consensus model adopted in the 1950s.

Shell is eager to revive flagging returns and bolster its position as smaller competitors such as Exxon and British Petroleum pursue multi- billion-dollar acquisitions to create companies that rival it in size. The presentations will be the most detailed to date on the strategy of its chairman Mark Moody-Stuart, who assumed the post on 1 July.

"They must do some ingenious restructuring to their business to get returns up,'' said David Stedman, an analyst with Daiwa Europe. "They're facing a terrible oil price, a slowing petrochemical cycle, and competitors are merging. These are significant problems.''

Analysts have all but dismissed the prospect that Shell will tie up with another major oil company, such as Chevron, Texaco or Conoco. It doesn't need further economies of scale - it's already bigger than BP/Amoco would be - and because it has avoided the kind of cost-cutting that US oil companies executed in the last decade, Shell still has plenty of places to trim. Shell executives said large mergers often get bogged down in regulatory reviews that can strip the transactions of their envisioned benefits and distract managers.

"Academic work shows that mergers rarely achieve all the benefits envisaged,'' vice chairman Maarten van den Bergh said in October.

Instead, Shell is focusing on its own house. Its profits fell 31 per cent in the first nine months of this year to $4.3bn as Brent crude fell below $10 a barrel, its lowest in 12 years and half last year's peak of almost $25. Mr Moody-Stuart is eager to deliver Shell's promise last year to make 15 per cent return on capital invested. The measure of the company's efficiency in making investments dipped to 9.2 per cent in the year to October, down from 12.1 per cent in 1997.

His plan has two prongs: slim the management team and sell businesses that won't be first or second in their markets. Mr Moody-Stuart also is eager to simplify Shell's reporting lines, which traditionally have run along regional and business-segment lines. In September he said headquarters in the UK, Netherlands, Germany and France would be closed to strip the country barons of power. "Executive decisions have to be made rapidly and business accountability must be clear,'' he said last week.

Analysts figure Shell could announce charges of between $2bn and $5bn to cover the cost of closing refineries, selling chemical plants and marking down the value of ageing oil fields. Mr Moody-Stuart said in October that the company was considering some write-downs but declined to discuss their magnitude.

"It's getting bloody inside the organisation,'' said Liz Butler, an analyst with WestLB Panmure in London. "Shell needs to take a $5bn charge, minimum.''

A write-down would reduce Shell's depreciation charges, bolstering both profit and returns on capital, and clear the way to sell some properties, such as its Sola refinery in Norway. It is soliciting partners for some chemical businesses, and lower oil prices leave it vulnerable to write- downs on ageing oil fields in the US and North Sea. Some analysts dismissed the prospect of a write-down as an accounting gimmick, though the method has won favour when done at rival oil companies.

BP began a 1992 restructuring with a pounds 1bn charge, selling refineries and its fertiliser business and scaling back oil exploration. Its return on capital employed rose to 17.4 per cent last year from 9.4 per cent in 1993. Copyright: IOS & Bloomberg

Suggested Topics
PROMOTED VIDEO
Arts and Entertainment
musicBand's first new record for 20 years has some tough acts to follow
News
peopleAt least it's for a worthwhile cause
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Life and Style
Sexual health charities have campaigned for the kits to be regulated
healthAmerican woman who did tells parents there is 'nothing to be afraid of'
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments