Shell Strategy Update - A Barrel Full

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Shell Strategy Update

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abarrelfull wrote on 19 Mar 2010 11:54
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Shell has updated the markets with its yearly strategy webcast. Whilst there is nothing surprising in their statements, its useful to see what the big boys are thinking.

The company is assessing over 35 new projects from some 8 billion barrels of oil equivalent resources (boe), which should underpin Upstream growth to 2020.

In order to realise some of this they have a massive investment budget. A small part of that budget will come from divesting unwanted downstream assets.

Downstream continues to focus on profitability, with plans to exit 15% of refining capacity and 35% of retail markets, and growth investment to enhance the quality of manufacturing and marketing portfolios.

What I find interesting about this approach is the fact that Shell has such a great brand name. In many markets it has spent a fortune to become a first choice brand. Now all that brand equity will go up in smoke.

On the refining side, selling assets in the midst of a downturn just seems like bad timing, no matter what the long term strategic fit of the decision. On top of that, the assets that Shell wants to get rid of are largely poor quality refineries. Why were they left to rot, when with a little investment, they could have been so much better, whether they chose to keep or dispose of them. Now they are selling poor quality assets into a buyers market.

Like the rest of the industry, they see the oversupply of gas as a temporary blip.

In natural gas, cleanest of all fossil fuels, the medium term fundamentals are also attractive for Shell.

Whether this is just bravado, from a company that has shovelled Billions of Dollars into a business that is currently in the doldrums, we will have to wait and see. They seem to be steaming ahead however:

Australia should underpin Shell’s next tranche of LNG developments, within a world-wide options set for a possible further 10 million tonnes per year (mtpa) of capacity by 2020, which could take Shell’s total capacity to ~35 mtpa.

Overall, its business as usual. Like its main competitors, it has survived the volatility and other pressures of the past couple of years rather well.