Against a backdrop of a drop in oil prices this year of nearly 50 per cent, Shell is expected to reveal new restructuring plans to the City on 14 December. A straw poll of five analysts agree these should include across-the-board job cuts and the closure of up to six refineries in mainland Europe.
The planned mergers between BP and Amoco of the US and the two US oil giants, Exxon and Mobil, have caught Shell on the hop. Most industry analysts agree Shell, which has already shed 4,000 jobs this year, needs to knock itself into much better shape before it can even think of partnering up with another oil company.
In another blow to Shell, the Anglo-Dutch company was last week forced to cancel a proposed agreement with Texaco to combine the two firm's refining and marketing operations in Europe because the two sides could not agree on how to split the returns.
"They have started to close refineries and do the things that are needed, but they need to do more of the same and do it more urgently," said Chris Buckley, energy analyst with Merrill Lynch Global Securities. He said the company "ideally" needs to cuts its payroll to around 85,000 from the current 105,000. According to Robert Halver, an analyst with Delbrueck in Frankfurt, at least 18,000 jobs need to disappear at Shell. "Jobs have to go across the board, at all different levels," he said.
Even before the BP-Amoco and Mobil-Exxon mergers were announced, the company was coming under fire from analysts. "Shell has been consistently less profitable than Exxon since 1981, and the divergence in relative performance has become more marked as the years progress," said SG Securities in a hard-hitting note on the company published last November. "It is hard to avoid the conclusion that Shell's basic orientation, corporate philosophy and culture, management style and decision-taking processes are fundamentally inferior to those in operation at Exxon," the note said.
For the first nine months of 1998, Shell's return on capital employed was 8.13 per cent compared with 12.21 for Exxon and 11.07 for BP. And with oil prices expected to remain at their lowest for 25 years, at around $10 a barrel, these kind of figures are deeply worrying to analysts. "I would also be happy to see some asset sales in refining," said Mr Halver.
Merrill Lynch's Mr Buckley expects Shell to sell its refinery in Reichstett, France within the next couple of years and possibly three or four others in Denmark, Germany and Sweden. He said new environmental regulations that come into force in 2000 and 2005 would in any case make it cheaper to close the refineries than to upgrade them to meet the required standards.Reuse content