Shell to Sell Transok, Chemicals Assets, Take $4.5B Charge
Royal/Dutch Shell Group Chairman Mark Moody-Stuart said last
week the company plans to sell 40% of it chemicals business and
take a related fourth quarter $4.5 billion after-tax charge. He
described the move as the first step in "clearing out the
cupboard," which also will include selling multiple other assets in
areas of high cost oil production, refining, and gas transportation
Shell plans to reduce its petroleum product businesses to 13
from 21 plants. It plans to sell 50% of Montell, a Dutch
petrochemical company. Also among the assets that will go is
Transok, the 6,500-mile Oklahoma intrastate gas transmission and
gathering system that Shell subsidiary Tejas Gas purchased in May
1996. Tejas paid $890 million for Transok, which makes it one of
the largest midstream transactions ever done.
In a statement issued by Tejas last week, the company said it
would "immediately initiate a competitive sales process, with an
anticipated closing of the transaction in the first half of 1999."
Tejas said the sale is "consistent with the recognition that the
long-term success of our midstream business is dependent on
capturing the key synergies between Tejas, Coral and Shell's
producing assets. We view our Gulf Coast transportation, storage
and NGL operations as the assets best aligned to complement Coral's
industrial marketing activities and the growth of our power
generation business. The sale of Transok will enhance our capital
resources and our capability to concentrate on these synergies."
Shell's radical restructuring program is designed to achieve
$2.5 billion in annual cost savings by 2001 and create greater
efficiency during an extended period of low crude prices and
increasing competition. "I am absolutely clear that our group's
reputation with investors is on the line," said Moody-Stuart.
The announcement last week followed a report that Shell would be
establishing a much greater degree of executive accountability at
all levels with executive structures replacing the business
committee system to ensure decisions are reached "more rapidly,
"We have had to make tough choices," Moody-Stuart said. "But
although we have made some very big cuts, with an $11 billion
global spending program we still have plenty of room for
growth....and remain ahead of the competition."
Moody-Stuart said Shell expects little help from the business
environment with the price of Brent crude over the next five years
forecast to be an average of $14/bbl. Global economic growth is
assumed to be a maximum of 2% while chemical margins will decline,
at least initially. Shell has in the past few weeks announced job
losses totaling 4,000 on a global work force of 105,000. The
changes announced last week will result in further reductions, but
no figures were provided.
Moody-Stuart confirmed the company has looked at "merger
possibilities and will continue to look at such possibilities, and
if the right opportunity arises we will act. But we are large
enough to be the leading company on our own without any merger."
Two weeks ago, it was rumored Shell and Chevron would announce a
merger, but the two companies would not comment on the reports.
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