Posts under ‘Houston Chronicle’

When the recession hit, the major companies streamlined, cut costs and became more efficient, giving them a shot at a profit comeback

By BRETT CLANTON
HOUSTON CHRONICLE

Feb. 21, 2010, 4:32PM

Big Oil has had a little less swagger in its step of late, humbled by a global recession that halted a multi-year run of soaring profits and exposed weaknesses that had been less acute when times were good.

International giants like Exxon Mobil and BP have suffered the effects of the economic downturn, which brought the first significant decrease in global energy demand in nearly three decades, created wild gyrations in oil and natural gas prices and wreaked particular havoc on the oil refining business.

But they responded in different ways. Some took a hard look at organizational structures and cut thousands of jobs. Others pared portfolios to pay debts and refocus on core businesses, while at least one took advantage of the depressed climate to boost spending and make a major acquisition, even as profits tumbled.

“The majors weathered the storm in 2009, but I would also say it made them more efficient, more focused,” said Gary Adams, vice chairman of Deloitte’s oil and gas practice in Houston.

The biggest international oil companies will likely continue to face tough conditions in oil refining this year, amid still-weak demand for gasoline and other fuels, rising crude prices and surplus plant capacity.

The natural gas business also remains challenging in the short term, as does the task of trying to lure back investors who recently have been more enamored of shares in smaller, faster-growing oil and gas firms.

Add broader concerns about the slow pace of economic recovery, the increasing difficulty in accessing new oil and gas resources and the possibility of new, costly regulations on the industry, and the outlook grows cloudier still.

Majors have advantage

Yet, the oil majors — with their diverse integrated business models, big balance sheets and cautious approach to investing — still may be among the best equipped in the industry to ride out what’s ahead.

“That’s partly why they’ve gotten to be as big as they are,” said Ken Medlock, a fellow in energy studies at Rice University’s Baker Institute.

Or, as Kenneth Cohen, Exxon Mobil’s vice president for public and government affairs, put it recently, “It’s really these times that our company and our business model are designed to handle.”

In recent years, rising oil and gas prices drove profits of the five biggest Western oil companies — Exxon Mobil, Royal Dutch Shell, BP, Chevron Corp. and ConocoPhillips — to new heights.

In 2008, when crude oil reached nearly $150 a barrel and retail gasoline topped $4 a gallon nationwide, the companies made a combined profit of $100 billion. That’s the second-highest on record from the group, exceeded only by the 2007 combined total of $123 billion. But the global economic crisis changed all that and in 2009 slashed the group’s combined haul to $61 billion.

In response, the majors have taken steps to cut costs and streamline operations.

• • Shell, under a sweeping reorganization launched in July by new CEO Peter Voser, cut 5,000 jobs last year, including hundreds in Houston, and aims to eliminate an additional 1,000 positions this year. It’s also reviewing 15 percent of its non-U.S. refining capacity for possible sale.

• • BP has shed 7,500 employees since late December 2007 under an ongoing turnaround program led by CEO Tony Hayward, who said this month the British oil giant still has a way to go in becoming more competitive.

• • ConocoPhillips, Houston’s largest public company, plans to sell $10 billion in assets over the next two years to help pay debts and improve financial flexibility. Separately, the company recently said it may consider closing refineries that can’t cover their costs.

• • Exxon Mobil, the biggest U.S. oil company, has shed global refining assets in recent years, and officials said it will continue to “optimize” its downstream portfolio, but it doesn’t see any need for a major restructuring.

• • Chevron Corp., after cutting expenses 15 percent in 2009, is planning a reorganization of its global refining business, which will result in an unspecified number of job losses. It has also cut its 2010 capital spending budget by 5 percent.

‘Becoming leaner’

Many of the moves were tied directly to the global collapse in refining, but the poor economic environment also gave some companies cover to take an ax to organizations that had grown too big or complex.

“A lot of this is eliminating redundancy, becoming leaner, and that’s important, particularly in an environment where costs are as high as they are,” Medlock said.

Recently, however, stabilizing global economic conditions and higher oil prices have helped stoke investment and are buoying hope of a recovery.

Spending on exploration and production, excluding acquisitions, is expected to rise by 7 percent to $326 billion in 2010 among more than 65 of the largest publicly traded oil and gas companies, according to a recent report by Norwalk, Conn.-based energy research firm IHS Herold. That compares with a 23 percent decline in upstream spending in 2009.

Also this year, majors likely will be on the hunt for acquisitions, particularly those that expand their holdings in North American natural gas shale plays, like Exxon Mobil’s recent deal to purchase Fort Worth’s XTO Energy for $41 billion.

“Unconventional gas is still where a lot of the action is going to be,” said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates in Cambridge, Mass.

Not only are such deals a strategic bet the world will move toward cleaner fuels, they could help majors regain the attention of investors who have recently rewarded independent oil and gas producers for leading the way in shale and other unconventional gas plays.

In 2009, Standard & Poor’s Oil and Gas Exploration index — a basket of stocks that includes names such as Anadarko Petroleum, Apache Corp. Devon Energy and Southwestern Energy — grew 41 percent. By contrast, a Standard & Poor’s index that tracks the majors fell 4 percent.

But there is another possible explanation for the majors’ renewed interest in North American gas plays. With access increasingly limited to new oil and gas reserves around the globe, they’re simply running out of places to invest.

“All of the sudden, North America looks very attractive relative to other opportunities out there,” said Fadel Gheit, industry analyst with Oppenheimer & Co. in New York.

“It’s the devil you know versus the devil you don’t know,” Gheit said, “and they know this devil pretty well.”

brett.clanton@chron.com

SOURCE ARTICLE

“Risk Awareness has gone up; risk tolerance has gone down,” said Jon Unwin, vice president of safety, environment and sustainable development for Shell Upstream Americas’ deep-water unit. Today, Shell, Chevron and others talk about cutting offshore incidents to zero.

A trial against Shell Oil on these allegations is set for trial in May.

QUOTE FROM ROYAL DUTCH SHELL CEO PETER VOSER IN A COMMENT TO SHELL EMPLOYEES: “I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months…”

Introduction by John Donovan: Printed below is a syndicated Bloomberg article published by the Houston Chronicle containing the above quote. It must rank as Grade A BS on a par with Shell Ethics and Compliance Chief, Richard Wiseman, making an anti-corruption speech, when in fact he has a track record of supporting and encouraging corruption, deceit and predatory IP theft by Shell managers.

We are encouraged to speak out even more frankly now that we have written confirmation from Shell that the company decided long ago that it will never sue us, apparently because we have too much Shell “internal laundry.”

Instead, discredited pathetic Shell executive directors are reduced to launching a covert global spying operation directed against Shell employees specifically in connection with this website. And they could not manage to even keep that secret. More humiliation.

Houston Chronicle: Bloomberg News

Shell chief calls 2010 ‘challenging’ for refining, costs

Dec. 29, 2009, 5:59AM

Royal Dutch Shell Plc, Europe’s largest oil company, expects the pressure on refining margins and costs to persist next year amid a challenging economic situation.

“I expect that 2010 will be, from a macro environment point of view, still a challenging year,” Peter Voser, chief executive officer at the Hague-based Shell, said in a video to employees. “We’ll see pressure on refining margins and some further pressure on competitive performance regarding costs.”

Shell and competitors such as Exxon Mobil Corp. are cutting costs as they seek to rebuild profits battered by a global recession and reduced energy demand. Shell, whose refining earnings fell 47 percent in the third quarter, is responding by cutting 5,000 jobs, or about 5 percent of its workforce, and reducing operating costs by about $1 billion in the first nine months of the year.

Voser, who took over from Jeroen van der Veer in July, wants to streamline operations after saying the company was “too complex.” As the first non-British or Dutch national to head Shell in its 102-year history, he started off by announcing a reorganization called Transition 2009, almost two years after a similar shake-up at BP.

“I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months,” Voser said to employees. “We’re closing Transition 2009 in 2009. What we’re doing now is actually embedding what we want to achieve with the restructuring into the plans and your activities in 2010.”

The refining margin is the amount companies make by turning crude oil into products like gasoline.

www.bloomberg.com

COMMENT POSTED ON ARTICLE BY JOHN DONOVAN

Royal Dutch Shell CEO Peter Voser is quoted in the Bloomberg article as saying to Shell employees: “I was very positively surprised by how you kept your eyes on the operational performance — on the day-to-day job you had to do — while going through the uncertainties of the last few months,”

This unfortunately confirms that he is just another B/S merchant. I operate a website which a Shell official has acknowledged “is an excellent source of group news and comment and I recommend it far above what our own group internal comms puts out.”

According to our network of Shell internal sources, for which we are renowned, the Voser restructuring has been a disastrous distraction with thousands of employees forced to reapply for a limited number of jobs. Voser has described this totally ruthless policy as “an interesting exercise”.  As per “Terminators” comment, thousands of jobs are also being outsourced to China and India.

In the meantime, Shell is doing business with the fanatical Iranian regime which supplies munitions that kill and maim American soldiers. Also with the Libyan dictator responsible for the bombing of Pan Am 103.

I therefore entirely endorse the call for Americans to boycott this evil company which is prepared to deal with the devil if needed, to get its hands on hydrocarbon reserves.

Remember, this is the same multinational which settled a US lawsuit in June 2009 for $15.5 million in respect of the torture and murder of its opponents in Nigeria. They rightfully objected to the decades long plunder and pollution of their Country by the Anglo Dutch oil giant.

Posted by John Donovan: http://royaldutchshellplc.com/

POSTING BY A SHELL INSIDER: “JO BLOW”

The state of Accountability within Royal Swiss err.. I mean Dutch Shell

After the recent announcements concerning moving more of the finance functions to shared service centers in India and Manilla I thought now would be a perfect time to make a few points that are obvious to me.  If we all recall last May, the Board of Directors for RDS came under intense fire from shareholders on the disparity between executive pay packages versus performance.  Mr. Voser apparently heard the cry and began cutting fixed cost immediately, however the question remains whether his cost cutting will be effective and sustainable.  In my humble opinion all he has accomplished is short term cost reduction, I don’t see that he has fixed anything culturally that will translate to sustainable cost structure improvement.  At this point you may be saying “but Jo, these folks he got rid of are not coming back so that cost reduction is permanent”, and ordinarily I might be inclined to agree with you.  The fact of the matter is simple he did not hold the people accountable that created the bloated cost structure, he promoted them.  This does not really suprise me in the least because despite the corporate claims, Accountability for actions does not exist, I will qaulify this assertion with a few specific points.

What was Mr. Van der Veer given for his contribution to the state of Shell Oil today?  A big fat pay package that outraged share holders.

What happened to the brain trust that created the bloated cost structure Shell operates in today?  Massive IT projects that never delivered the promises of improved efficiency, Support sections like Finance and HR that are empires in themselves.  Shell Global Solutions, our own internal technology group that cost a business unit more to use then they lose by not inviting them in.  If you want to know where these folks are, just take a peek in EC-1 through EC-3, you will find them there.  I doubt that they have learned any valuable teachings about accountability.

Who was fired or disciplined for the poor performance of the Crude Expansion project at Port Arthur?  I can tell you that it was not the Venture Manager Forrest Lauher.  Under Lauher’s control the project budget escalated from a 7.2 billion dollar project to north of 10 billion, productivity in the field did not exist, the managing contractor had sufficient control of the project to work it as a schedule driven project instead of the cost driven project it had always been.  Where was Mr. Lauher during all this?  I would expect he was up at the Lake with his buddy Mr. Purves.  What happened to Mr. Lauher after the meltdown and re-organization of the project?  Well, He got him a nice little promotion to GM of Port Arthur Refinery instead of the pink slip that he deserved if held accountable for his poor management.

The vast majority of people that have been or will be let go as part of Transition 09 had nothing to do with creating the problems, but they are the people that will pay the price.  The jobs in finance and that will be migrated to India and Manila were not created by the employee filling the job, but by some executive.  Do you think that executive will be held accountable for his apparent bad decision to create a bloated finance section that cost to much to operate?  Until Shell makes meaningful changes to its culture at the top leadership levels the sustainability of cost improvement will not exist.

By BRETT CLANTON Copyright 2009 Houston Chronicle

(NOW WITH AN ADDED COMMENT FROM “JO BLOW”)

Dec. 15, 2009, 8:40PM

Shell shipping Houston jobs overseas

Royal Dutch Shell has publicly announced it will slash 5,000 jobs by year end—including “hundreds” in Houston—as part of a sweeping reorganization new CEO Peter Voser said is needed to make the company more competitive.

But under a separate program, the European oil giant has been quietly transferring additional office jobs from Houston and elsewhere to India and the Philippines to reduce costs, according to internal Shell documents obtained by the Chronicle and a person familiar with the plan.

The “migration” programs affect employees in finance and other support functions, which are being consolidated in what the oil company calls “shared service centers” in low-cost countries to fit the new company structure.

They are “part of a Shell-wide effort to streamline processes and improve efficiency” and “will enable us to deliver consistently world-class service at a competitive cost,” according to a Shell Powerpoint presentation for a portion of the company’s finance division.

It’s unclear how many of Shell’s 13,000 employees in the Houston area will be affected by the migration plans. Partly, that’s because company officials are still deciding which jobs will stay or go abroad, and are rolling out the plans in phases that run into next year. But at least a few divisions in Houston are preparing to be downsized dramatically.

“People are very concerned about their future,” said a Shell finance employee, who requested anonymity for fear of losing his job.

He said about a quarter of the jobs on his team will be relocated to India in coming months and that more will follow under a final phase next year.

The salaries for the foreign jobs are a small fraction of those for similar U.S. jobs and have fewer benefits, making it impractical for many American employees to make the move, the finance employee said.

Shell officials would not comment directly on the internal company documents, nor discuss potential job losses from migration programs. But they said shared service centers in Manila are part of a broader effort to make the company more efficient and competitive.

Major oil companies including Shell, ConocoPhillips and BP have been cutting jobs, capital spending budgets and other costs in response to the global economic downturn that has sapped demand for petroleum products like gasoline and diesel fuel.

And it’s nothing new for multinational companies to move U.S. jobs to lower-wage countries to save on labor costs.

But Shell’s migration programs could have broader implications for Houston. They suggest that yet another category of well-paying jobs in the oil and gas industry is leaving the city, perhaps forever, as energy companies try to get leaner to compete.

“We talk about Houston being the energy capital of the world, but it’s lost some of that edge, especially in the manufacturing sector,” said Barton Smith, director of the University of Houston’s Institute for Regional Forecasting. “But it remains the technological center of energy and it remains, to a large extent, the financial center.”

The exit of energy finance jobs from the city would be discouraging, especially as a shortage of engineering talent has already forced the oil industry to recruit overseas, said Amy Jaffe, a senior fellow in energy studies at Rice University’s Baker Institute.

But at the same time, Shell could add other jobs to the region over time as the company develops major projects in North and South America, she said.

In fact, the region should be a “disproportionately growing part of Shell” in coming years with new projects in deep waters of the Gulf of Mexico and Brazil, the Canadian oil sands and natural gas fields in the U.S. and Canada, said Marvin Odum, president of the company’s U.S. division, in a recent interview with the Chronicle.

For now, however, the company is still finding its footing amid uncertainty on many fronts.

Shell, which is based in The Hague, with U.S. headquarters in Houston, has been involved in a major downsizing since Voser replaced Jeroen van der Veer as CEO in July.

By year end, the company plans to cut 5,000 employees, or 10 percent of its global workforce, under a reorganization he calls Transition 2009.

The process — which merged the company’s three upstream businesses into two, expanded its downstream group and added a new projects and technology division —trimmed management ranks by 20 percent and has forced 15,000 Shell employees to re-apply for a smaller pool of jobs.

Shell officials said that reorganization will wrap up by the end of this month.

The company has been moving on a separate track with its migration programs.

The company recently told employees within its finance division that some of their jobs are being relocated from Houston and Calgary, Alberta, to “finance operations centers” in Manila and Chennai, India.

Spokesman Bill Tanner said foreign shared service centers are key to improving the finance unit’s competitiveness. “Currently, our finance operations are too complex and too costly and this is preventing the finance function from fully contributing value to the business,” he said.

brett.clanton@chron.com

Although you say “Shell officials said that reorganization will wrap up by the end of this month.” in fact Shell CEO Peter Voser has recently warned of a further unspecified number of job cuts at Shell next year.

Posted by John Donovan of http://royaldutchshellplc.com/

SOURCE ARTICLE

Jo Blow
on Dec 18th, 2009 at 3:27 pm

“You have to allow a secondary market to develop,” David Hone, Shell’s climate change adviser, told reporters at an energy conference in Singapore today. “You don’t want to have a carbon market that’s restricted from doing what other commodity markets are doing.”

Houston’s energy economy has clearly felt the sting of an unprecedented drop in crude and natural gas prices, with more than 18,000 jobs lost in past months.

But recent downsizing moves by Royal Dutch Shell, ConocoPhillips and other oil and gas companies appear to go beyond the typical bottom-of-the-cycle belt tightening.

They suggest a permanent shift toward doing more with less — in what could be a troubling trend for Houston.

As part of the plan, 15,000 Shell employees have to re-apply for a smaller pool of jobs, leaving many in limbo until selections are made.