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The Times: BP and Shell are defined by differences

By James Harding
BUSINESS EDITOR’S COMMENTARY
The Times October 26, 2006

UNFORTUNATELY for Lord Browne, his final two years at BP — assuming he stays that long — look set to be haunted by a classic species of story: you know that thing you never heard of, well, it’s not happening.

During the wrangle over Lord Browne’s retirement this summer, it emerged that the BP chief executive had explored the idea of one last mega-deal, namely a merger with Royal Dutch Shell. It was never clear whether it was a possibility that Lord Browne diligently explored or simply mulled for the duration of one cigar. Either way, his chairman, Peter Sutherland, was said to have quashed it.
 
BP is bedevilled by political problems, inside the company and out. But the Shell issue is a diversion. Lord Browne is being wilfully misconstrued in the light of the deal that never was.

Referring to the prospects for industry consolidation, Lord Browne, who runs a business worth £120 billion, said: “Looking at it from 50,000 feet, you’d have to say there’s an awful lot of players dealing with very small pieces of an industry.” This is true — and it has nothing to do with Shell.

BP and Shell look increasingly defined by their differences, rather than how they could complement each other. Shell, which reports its third-quarter results this morning, is investing ever more in the kind of unconventional energy assets such as oilsands in Canada and elephantine engineering projects such as Sakhalin-2 that BP has been shunning. Lord Browne is making a point of spurning the oilsands opportunity, demonstrating BP’s more cautious view of oil prices. (Independent analysts calculate that extracting crude from oilsands is viable only if the price of oil stays above about $35 a barrel. By steering clear of the oilsands, BP is styling itself as the prudent major.)

It is true that a falling oil price could create pressure for consolidation, but the opportunity for BP and Shell will come from snapping up over-ambitious explorers and producers who are banking on long-term prices over $45 to $50 a barrel.

And it is true that BP and Shell are “players dealing with very small pieces” of the industry: the real energy giants are, as they have been for years, the national oil companies (the NOCs), owned and controlled by national governments. Saudi Aramco, for example, has roughly ten times the reserves of Shell and BP combined.

Neither BP nor Shell — nor both combined — will do as much as the NOCs to determine the future of world energy.

http://business.timesonline.co.uk/article/0,,8210-2422404,00.html

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