Shell puts its foot on the gas

Royal Dutch/Shell’s full-year results, published later today in London, will paint a picture of a giant corporation struggling to come to terms with widespread consolidation, outdated internal structures and plunging oil prices.

At the heart of the process is Stephen Hodge, group treasurer for seven years and previously chief financial officer of the oil giant’s Australian operations.

He has recently witnessed oil prices drop to $11 a barrel, making it increasingly difficult for Shell to make money from its principal source of revenue.

Despite these obstacles, Shell aims to deliver an average 14% return on capital employed in 2001, compared with 15% in 1997, a year when price forecasts were more than 25% higher.

To cope with a climate where decisions must be made rapidly, Shell has been forced to overhaul its internal structures.

The major change at the group has been replacing the old business committees with a new executive structure.

The Anglo-Dutch element makes the task harder, but regional fiefdoms are being liquidated, large chunks of the chemicals business are up for sale and costs are being cut in remaining operations.

Cost cutting inevitably means job losses. Shell has already axed 4,000 employees from a global workforce of 105,000. And Hodge is not ruling out further job cuts. ‘You cannot afford to carry any dead wood whatsoever,’ he says.

These changes are helping improve the City’s attitude to Shell at a time when many of its competitors have merged – BP and Amoco, Petrofina and Total, and Exxon and Mobil.

‘In the past, our criticisms of Shell have centred on undynamic management, organisational structures with poor cost-control systems, the poor quality of its assets, and the ineffectiveness of its investments,’ says Mark Horn, European head of City analyst T Hoare. ‘Shell is working towards getting better control of its business but it is not going to happen overnight. We do not expect Shell to become a BP but it is tackling some of the most obvious problems.’

When BP and Amoco merged, Hodge scotched rumours of a possible link-up between Shell and Texaco. But he refuses to rule out a merger at some point.

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