Shell to restructure under new chief

Shell to restructure under new chief
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First Published: Wed, May 27 2009. 03 35 PM IST
Updated: Wed, May 27 2009. 03 35 PM IST
London: Royal Dutch Shell Plc’s incoming chief executive Peter Voser plans to restructure the oil major’s operations to cut costs and avoid repeating past project delays and cost overruns, the group said on Wednesday.
Shell said its core exploration and production (E&P) business would be divided into a unit covering North and South America and a non-American unit.
The new upstream divisions will also take responsibility for liquefied natural gas and power operations in their spheres. Gas and power was previously a separate unit under Linda Cook, who Shell said on Tuesday was stepping down.
The world’s second-largest non-government controlled oil company by market value will also create a new division to manage the design and construction of new upstream and downstream projects.
In recent years, Shell has suffered big delays and cost overruns on major projects such as the $22 billion Sakhalin-2 project in Russia and the Pearl gas-to-liquids plant in Qatar.
The company hopes by following the approach of industry leader Exxon Mobil in having a separate unit responsible for new projects, it can cut costs and boost reliability.
BP’s Tony Hayward also took a cue from Exxon after he took over as CEO in 2007, ordering increased standardisation in BP projects. The London-based oil major also merged its upstream and gas and power units.
Shell’s London-listed “A” shares traded down 1.2% at 1,628 pence at 0904 GMT, lagging a 0.1% rise in the DJ Stoxx European oil and gas sector index.
Jason Kenny, oil analyst at ING, said Shell was admitting, with the restructuring, that its costs were “unsustainably high” and it was too slow at decision making.
“The proposed new start from the new CEO Peter Voser is perhaps too late to support outperformance versus peers in our view,” he said in a research note.
Shell did not outline targeted cuts in headcount or costs but Kenney said, “Shell will likely be aiming at high $100 millions gains if not low $1 billions over the next two years or so.”
Malcolm Brinded, currently head of the global E&P business, the unit responsible for most of Shell’s profits, will lose his responsibility for North and South American upstream operations and for upstream project delivery outside the Americas.
However, Brinded will take charge of almost all of Shell’s liquefied natural gas operations as these are centred outside the Americas.
The project delays and cost overruns were likely key reasons Brinded failed to secure the top job at the Hague-based company, analysts said.
Voser takes over from current CEO Jeroen van der Veer in July.
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First Published: Wed, May 27 2009. 03 35 PM IST