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Shell Mounts Major Reorganization

Royal Dutch Shell plc will streamline its operations, it said last week, and could slash thousands of jobs as the company continues to tangle with weak commodity prices, a flagging economy and project delays.

The company's incoming chief executive last Wednesday announced a restructuring intended to streamline operations, cut overhead and speed decision-making. The move follows project delays and cost overruns that have angered investors as well as a $2.81 billion net loss in the fourth quarter and a modest profit of $3.49 billion in the first quarter, which was a 62% decline from the year-ago quarter.

Shell's upstream activities are currently managed in three separate organizations -- Exploration & Production, Gas & Power and Oil Sands. Upstream will now consist of two businesses: Upstream Americas, covering North and South America; and Upstream International, covering the rest of the world. Marvin Odum, currently executive vice president for EP Americas, will become director for Upstream Americas. Malcolm Brinded, currently executive director of Exploration & Production, will become executive director of Upstream International.

Shell's top natural gas executive, Linda Cook, is to step down Monday. Cook, the company's highest-ranking woman, has worked for Shell for 29 years, the last five of which she was executive director of Shell Gas and Power, Shell Trading, and Global Solutions and Technology.

"I am most grateful to Linda Cook for her many important contributions to the success of our company," said Shell CEO Jeroen van der Veer. "Shell's LNG [liquefied natural gas] capacity has risen by over 60% in the last five years, with more to come."

Shell said Cook's departure was the result of "a mutual decision." Cook had been in the running to succeed to van der Veer and would have been the first woman to lead Shell had she assumed the post.

The other changes will be effective July 1. Peter Voser, who takes over from van der Veer as CEO on that date, said, "This new structure will increase accountability in the company, and improve Shell's performance on delivering new projects and developing new technologies. These changes will increase our focus, accelerate our plans to reduce complexity, corporate overheads and costs, and result in faster decision-making and delivery."

There will also be changes in Shell's Downstream unit. In addition to the Refining, Marketing and Chemicals businesses, the Downstream portfolio will be expanded to include Trading and Alternative Energy, excluding Wind, which will be part of Upstream. Downstream will continue to be led by Mark Williams as director.

A new business -- Projects & Technology -- will combine all major project delivery, technical services and technology capability covering both upstream and downstream. It will also oversee safety and environment performance. Matthias Bichsel, who is currently executive vice president for Exploration & Production Technology, will be the director of this business.

Cook was credited with leading the company's charge into natural gas.

"Several years ago...we actually took a view that natural gas would become quite a preferred fuel globally and made some conscious decisions to increase, for example, the amount of exploration budgets we put toward gas projects compared to what we had been doing in the past," Cook said in March (see NGI, March 23). "It's no surprise to us today that we are now close to 50-50 oil and gas in Shell. It was the result of conscious decision-making."

A major LNG player, Shell now finds itself in the midst of a global LNG glut during which more gas liquefaction projects will be coming on line through 2011 (see NGI, May 18a).

Cook's responsibilities included the company's renewable energy arm. Earlier this year she told reporters Shell was essentially dropping its pursuit of wind and solar energy development in favor of more spending on biofuels. "On wind and solar, they are of course interesting, but they continue to struggle to compete with the other investment opportunities we have in our portfolio, even with substantial subsidies in many markets," Cook said. "The outlook is we don't expect material amounts of new investment in those areas going forward."

While biofuels production more closely resembles the traditional activities of Shell and other major producers, some have said these companies are unwise to forsake renewable energies, even if their development doesn't mesh with current company skill sets (see NGI, May 18b). Biofuels is "a program that they feel they can do well and I get that, but I don't think it has the potential like some of these other things [wind and solar] do," Amy Myers Jaffe, the Baker Institute's Wallace S. Wilson fellow in energy studies at Houston's Rice University, told NGI recently. "And companies like Shell that have a gas and power business need to understand that they call their business gas and 'power,' and they need to focus on the power part of their business."

Over the last 52 weeks Shell's shares have traded as low as $37.16 and as high as $85.43 on the New York Stock Exchange. Last Wednesday's close following the restructuring announcement was $52.23, down $1.39.

Last month shareholders rejected senior executive pay packages on the basis of unmet performance targets (see NGI, May 25).

"We have made good progress on simplification and improving efficiency in recent years, but the competition is not standing still, and neither is Shell," said van der Veer.

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