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Shell to sell refineries to boost output

Daily Telegraph: Royal Dutch Shell has unveiled the most dramatic overhaul of its business in recent memory, outlining plans to exit more than a third of its 90 retail markets, slash refining capacity and return to growth after seven years of falling output.

By Garry White
Published: 10:10PM GMT 16 Mar 2010

Peter Voser, chief executive, unveiled a further 1,000 jobs cuts in addition to the 6,000 already announced as he vowed to “sharpen up” Shell in the next three years by boosting output by 11pc.

“Shell has been disadvantaged recently, due to our higher exposure to refining and natural gas, where margins are hard-wired to the economy,” Mr Voser said.

“The priorities are for a more competitive performance, for growth, and for sharper delivery of strategy. We have more to do to drive out cost and improve the operating performance in the company.”

Shell plans to exit 35pc of its petrol station markets and reduce refining capacity by 15pc to help it make cost saving of $1bn (£658m) this year. It also said it would sell non-core assets worth $1bn-$3bn a year, including its refineries in Gothenburg, Los Angeles and New Zealand.

Monday is the deadline for bids for the company’s liquified petroleum gas distribution arm, which could raise £1.1bn. Those understood to be tabling offers include Brazilian chemicals group Ultrapar, Centrica spin-off DCC and French listed Rubis, as well as a number of private equity groups.

“Upstream, we have built up strong foundations in activities like gas-to-liquids, oil sands and liquefied natural gas,” Mr Voser said. “Looking out to 2020, I expect Shell’s exploration to underpin new upstream growth, especially in North America and Australia, with additional barrels from development-led projects.”

The news came on the day that Shell released its annual report, which showed that Mr Voser earned less than Tony Hayward, chief executive of rival BP, in 2009. Mr Voser earned a total salary and bonus of £2.8m compared with Mr Hayward’s £4m.

Shell has said it would freeze management salaries until 2011 after shareholders objected last year when executives were awarded bonuses even after performance targets were missed.

Linda Cook, who resigned as head of Shell’s gas and power business in May last year, was paid a salary and bonus of £2.1m as well as a severance payment of almost €5.5m (£5m). She leaves with a total pension pot of just under $25m. Mr Voser’s predecessor, Jeroen van der Veer, left with a pension pot worth $34.2m.

Shell predicts oil will trade between $50 and $90 a barrel over the next few years and is targeting output of 3.5m barrels of oil equivalent per day in 2012. This compares to 3.15m in 2009, the equivalent to an annual growth rate of 3.5pc, or 11pc in total over three years

Mr Voser said the company should be in a surplus cash flow position in 2012, after capital investment and dividend payments – assuming $60 oil prices and a more normal environment for natural gas prices and downstream. In order to achieve this it will have to invest between $25bn and $27 a year in its operations.

The Anglo Dutch group also said that it replaced 288pc of its oil and gas output with new discoveries in 2009, or 3.42bn barrels of oil equivalent.

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