THE TIMES (UK): Shell must stop tinkering and start delivering fast: “If Shell is not rescued by a deal, it must work its portfolio even harder and, unfortunately, this is not always its best suit.” (ShellNews.net) 29 April 05

By Jenny Davey

Tempus  

A QUARTERLY earnings report from Shell unsullied by news of reserves downgrades is a welcome development, but yesterday’s figures gave investors few clues about how the company will substantially raise its game. Shell made a bundle of money in the first quarter but so did BP, their profits were about equal and ExxonMobil yesterday reported earnings that were greater by half as much again than BP and Shell. Even so, US investors sold ExxonMobil stock yesterday — the bulging coffers were not stuffed enough, they said.

The institutions are not being greedy, just suspicious that the oil majors are leaning a bit too heavily on the high price of crude. Thankfully, none of them is hoarding and the cash is being returned to investors. More than $13 billion, including share buybacks, will be paid out by Shell this year, allowing investors who doubt that demand for energy will continue to grow at these high rates to shift their money into other sectors.

Shell does have plenty of reserves, gas in Nigeria and oil locked up in sands in western Canada. Longer term, these are good things to have; as the world moves towards the peak of conventional oil production, a company like Shell with its oil sands and gas-to-liquids technology will have a keen edge. But right now it lacks the quick, easily accessible barrels that BP acquired in Russia when the oil price was half its present level. Ironically, what Shell needs is a sharp fall in the oil price back to the sub-$30 range, a level at which a few asset-rich mid-sized oil companies might become realistic targets for a cash-rich but asset-weak buyer.

If Shell is not rescued by a deal, it must work its portfolio even harder and, unfortunately, this is not always its best suit. Refining is a business rapidly evolving from ugly caterpillar to gorgeous butterfly.

Shell’s operations profited from the sudden surge in refining margins but it still fails to make the most of the windfall created by high gasoline prices and cheap Venezuelan crude because its plant is still operating at less than optimum rates. While the best refiners are achieving utilisation rates of 95 per cent, Shell’s were operating at 84 per cent.

Shell spent years tinkering with its US refineries. It’s time to get it right, fast. Hold.

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