Royal Dutch Shell plc on Tuesday announced updates to its strategy, including plans to reduce its worldwide refining capacity by 15% and exit 35% of its current retail markets.
"Our 2009 earnings were sharply reduced by the recession, despite Shell's self-help programs and $2 billion of cost savings," said Shell CEO Peter Voser in a written statement. "Although oil companies have been cushioned from the recession by OPEC's action on quotas and oil prices, Shell has been disadvantaged recently, due to our higher exposure to refining and natural gas, where margins are hard-wired to the economy. This has come in a period where our spending is at historically-high levels, as we invest for medium-term growth."

Voser said that near-term pressures on downstream and gas margins remain. In contrast, he described medium-term upstream fundamentals as "robust" and stated the company expects oil to trade typically in the $50-$90 range. "In natural gas, cleanest of all fossil fuels, the medium-term fundamentals are also attractive for Shell," Voser continued. "However, the global refining industry may be in over-supply for some time."

The Shell CEO stated that the company's strategy focuses on strong operating performance and sustained investment for organic growth. "That strategy is robust, despite the difficult economic environment," he said. "But the company had become too complicated and slower to respond than we'd like. So we are sharpening up."

In terms of narrowing its near-term performance focus, Shell plans $1 billion of cost savings this year as well as the reduction of some 2,000 positions by the end of 2011. Also, it intends to exit from non-core positions companywide via $1-3 billion of asset sales. Finally, the company is pursuing new initiatives designed to improve its downstream business by focusing on its most profitable positions and growth potential. This will translate into an exit from 15% of its worldwide refining capacity, from 35% of its current retail markets, and various steps to further improve its chemical assets.

Despite its pending actions to reduce its downstream business, Shell is adding chemicals capacity in Singapore and refining capacity in the U.S. Moreover, the company states that it is advancing "selective growth investment" in marketing. "Downstream, we are making substantial investments in new refining and petrochemicals capacity," said Voser. "Once these projects are on stream, I expect the downstream growth emphasis will switch to further strengthening our marketing for the next several years." 

Source: DownstreamToday