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Shell to Sell Transok, Chemicals Assets, Take $4.5B Charge

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 and processing.

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, more effectively."

"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.

Rocco Canonica

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