NGI The Weekly Gas Market Report
Royal/Dutch Shell Group Chairman Mark Moody-Stuart said lastweek the company plans to sell 40% of it chemicals business andtake a related fourth quarter $4.5 billion after-tax charge. Hedescribed the move as the first step in “clearing out thecupboard,” which also will include selling multiple other assets inareas of high cost oil production, refining, and gas transportationand processing.
Shell plans to reduce its petroleum product businesses to 13from 21 plants. It plans to sell 50% of Montell, a Dutchpetrochemical company. Also among the assets that will go isTransok, the 6,500-mile Oklahoma intrastate gas transmission andgathering system that Shell subsidiary Tejas Gas purchased in May1996. Tejas paid $890 million for Transok, which makes it one ofthe largest midstream transactions ever done.
In a statement issued by Tejas last week, the company said itwould “immediately initiate a competitive sales process, with ananticipated closing of the transaction in the first half of 1999.”
Tejas said the sale is “consistent with the recognition that thelong-term success of our midstream business is dependent oncapturing the key synergies between Tejas, Coral and Shell’sproducing assets. We view our Gulf Coast transportation, storageand NGL operations as the assets best aligned to complement Coral’sindustrial marketing activities and the growth of our powergeneration business. The sale of Transok will enhance our capitalresources 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 greaterefficiency during an extended period of low crude prices andincreasing competition. “I am absolutely clear that our group’sreputation with investors is on the line,” said Moody-Stuart.
The announcement last week followed a report that Shell would beestablishing a much greater degree of executive accountability atall levels with executive structures replacing the businesscommittee system to ensure decisions are reached “more rapidly,more effectively.”
“We have had to make tough choices,” Moody-Stuart said. “Butalthough we have made some very big cuts, with an $11 billionglobal spending program we still have plenty of room forgrowth….and remain ahead of the competition.”
Moody-Stuart said Shell expects little help from the businessenvironment with the price of Brent crude over the next five yearsforecast to be an average of $14/bbl. Global economic growth isassumed to be a maximum of 2% while chemical margins will decline,at least initially. Shell has in the past few weeks announced joblosses totaling 4,000 on a global work force of 105,000. Thechanges announced last week will result in further reductions, butno figures were provided.
Moody-Stuart confirmed the company has looked at “mergerpossibilities and will continue to look at such possibilities, andif the right opportunity arises we will act. But we are largeenough to be the leading company on our own without any merger.”Two weeks ago, it was rumored Shell and Chevron would announce amerger, but the two companies would not comment on the reports.
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