A Man in a Hurry

JOSEPH MAGNER, Macquarie Capital (09/08/2009)
"New management at oil companies normally takes time to make its mark, but in new CEO Peter Voser's case he seems to be a man in a hurry, with a radical organizational change already underway and immediately bringing more focus on costs. The underlying business strategy remains unchanged, based on Shell's portfolio of mega-projects, which are designed to re-establish growth from 2010 onwards, though the announced reduction in capex from 2010 suggests that a more critical eye is likely to be applied to future projects.

The cost reduction program is focused at removing layers of senior management and simplifying the business. Cost savings of US$700m have been made, similar to BP's levels once the impact of Forex is included.

. . .We think the growth potential of Royal Dutch Shell remains intact, as it is in the process of a transformation project, which will reposition it in major long life, low-decline assets. These will come on stream sequentially to 2012, and potentially beyond, which will provide more sustainable growth than the more traditional oil company model, which relies on regular field developments to offset the decline in the mature part of the portfolio. Shell has, however, amended its 2%–3% production growth rate from 'long-term' to '2012'—a small but significant change in emphasis, which could imply no or negative growth after 2012, given that it is deferring some of its less attractive projects. We think it does have the potential options to continue growth to beyond this; the question is whether it will invest to capitalize on this potential."

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