THE WALL STREET JOURNAL: Shell Has A Chance To Impress With Strategy Update: “management will Wednesday try to convince the market that the humbled Anglo-Dutch oil giant is on the road to recovery after years of weak performance and a headline-grabbing reserves scandal.” (ShellNews.net)
By MARK LONG
Of DOW JONES NEWSWIRES
Posted 19 Sept 04
LONDON -- Royal Dutch/Shell Group's (RD, SC) management will Wednesday try to convince the market that the humbled Anglo-Dutch oil giant is on the road to recovery after years of weak performance and a headline-grabbing reserves scandal.
A long-anticipated strategy presentation in London may well disappoint Shell watchers eager for an update on possible changes to the group's century-old corporate structure. Chairman Jeroen van der Veer just Thursday reiterated that the results of a comprehensive structure review won't come until November.
But analysts said Shell has a chance to impress if it proves brave enough to go forward with vital surgery on its main businesses.
"The seeds of recovery are there...the right presentation could provide the catalyst," Deutsche Bank said in recent research.
The bank noted that while shares in U.K. parent Shell Transport & Trading (SC) have outperformed the overall U.K. market by 10% this year, rivals BP PLC (BP.LN) and ExxonMobil (XOM) have enjoyed greater share price performance.
The key will be an overhaul of the mainstay Exploration & Production business, analysts said.
Years of underinvestment and scatter-gun exploration of smaller-than-needed prospects has left Shell failing to find more oil and gas then it pumps out of the ground each year.
"We need some sort of road map to indicate how they're going to get reserve replacement above 100%," said ING Financial analyst Angus McPhail.
The company has already boosted the amount it plans to spend on exploration, streamlined its worldwide E&P operations and tweaked its exploration strategy.
But the company still has a long tail of underperforming assets scattered around the globe.
"Shell needs to rationalize the number of countries in which it operates, disposing of small, mostly declining production bases with limited materiality or growth potential for the group," Citigroup Smith Barney analyst Jonathan Wright said.
In research published Friday, Citigroup pointed to a number of assets - several of which were inherited when Shell bought Enterprise Oil in 2000 - in the U.S., Norway and Italy, as well as a number of Asian and African producing and exploration properties.
"Whatever the disposal plans announced, we believe Shell will struggle to deliver any net growth by the end of this decade," said Wright, who recommends holding Shell 's shares.
Shell is expected to wield the scalpel in its retail and refining businesses as well.
During the past year, Shell has shed hundreds of service stations and stakes in refineries stretching from Japan to Portugal to Peru. It is also still in the midst of a major turnaround of its huge U.S. downstream operations, and has embarked on a top-to-bottom overhaul of its Oil Products business structure.
Merrill Lynch recently estimated that Shell has sold $3.6 billion in assets this year, of which two-thirds are refining, marketing or chemicals assets.
"We estimate that a further $1.4 billion of [downstream] disposals are pending" and that these sales should be completed by the end of the third quarter, the investment bank says.
Shell has already said it and 50% partner BASF (BAS.XE) are looking at a number of alternatives, including a sale, of their Basell chemicals joint venture. And sources said they expect a sale of part or all of the Shell/Bechtel Group (BTL.XX) Intergen electricity joint venture in the near future. Analysts pegged the value of Shell 's 68% stake in Intergen at around $4 billion.
A key question is what will Shell do with all the cash from these disposals.
Some analysts said an extension of the company's share buyback program, announced in April, into next year is possible.
"They'll use that as a sweetener to say 'we're bringing value to shareholders,'" ING's McPhail said.
Company Web site: http://www.shell.com/
-By Mark Long; Dow Jones Newswires; +44 (0)20 7842 9356; mark.long@dowjones.com