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Lubricants World: Person of the Year: David Pirret, Shell Lubricants. (Cover Story).

Publication Date: 01/01/2003
Author: Carnes, Kathryn

It is a windy and sunny day in Houston, and from his windowed office high above the city’s downtown, David Pirret is watching for the leading edge of the cold front expected to hit that afternoon.

But Pirret, the new president and leader of Shell Lubricants within Shell Oil Products US, has his eye on more than the weather. After being named to his post in the middle of May 2002, Pirret had little time before he would take over as head of the No. 1 marketer of lubricants in the United States, when the acquisition of Shell with Pennzoil-Quaker State (PZL-QS) was finalized on Oct. 1.

Pirret appraises the lubricants landscape with as keen an eye as he watches for approaching storm clouds. And in the interview taking place on this windy day, it quickly becomes apparent that Shell Oil Products US has chosen its top lubricants executive well.

A Good Fit

“Lubricants has always been a business that has fascinated me,” Pipet says. “It is more complex than some other parts of the business, and there is much more you can do with it.”

It was the chemicals business Pirret first joined when he came onboard with Shell in the U.K. 28 years ago, but “after a few years I switched across to the oil side, and my first job was leading the U.K. lubricants business. That included the total product line and all parts of the business. It was a great opportunity,” he says.

Pirret’s background seems to be right in line with the needs of the newly merged company, particularly now that it includes the top two brands of passenger car motor oil (PCMO), both of which are highly visible in the consumer-products retail markets. He graduated from “university” with a degree in marketing and has held several sales, marketing, and leadership roles with The Royal Dutch/Shell Group. As he alluded in the interview, he is the former managing director of Shell Lubricants UK and brings extensive oil products retailing experience in the U.K. and Brazil to his new job.

But his first mission, and one he apparently relishes, has been leading the planning and implementation of integrating the Shell and PZL-QS organizations. In doing so, he also has been charged with enacting a corporate mission to develop a global lubricants business structure by January 2004 along lines similar to the successful Shell models already established in aviation, marine products, and liquefied petroleum gas.

Pirret calls the opportunity “a great challenge. I’ve said in many internal meetings that I’d rather be standing where I am than standing where some of our competitors are. We’ve really got the heritage of four companies to work with, because in Shell a lot of the lubricants people were from Texaco [by way of the now-dissolved Equilon and Equiva joint ventures]. So it hasn’t been the merger of just two cultures,” he emphasizes; “it’s been four.”

Pirret also is quick to point out that while Shell is recognized as an international company, PZL-QS likewise is active outside North America. Brands from both companies are being integrated into the global structure, Pirret says, noting that the interplay between the two groups of products and their ability to leverage off of one another in different regions and industry segments make the combination a formidable one. He stakes his claim on not just the size of the new Shell Lubricants organization, but also on the shareholder value it can provide.

“There is a lot of discussion in all of these mergers about capturing synergies and eliminating overlaps,” he points out. “But at the end of the day, you have to keep your eye on the top line as well. It is great to capture all the synergies to improve the bottom line, but we feel the majority of our benefit will come from just running and improving a good, solid business. This is very important because with the sort of market share that we now have, we have to make sure that the industry carries on forward and we have to increase that [market] .”

Value & Values

Value and values are words that creep into Pirret’s speech often. He cites the values and principles of Shell as primary reasons for his long career with the company, for instance. He was first drawn to Shell because his brother worked for a Shell subsidiary and “he thought very positively about the standards and values of the company,” Pirret says. Later he adds, “I couldn’t work somewhere that had very different principles from myself.”

But, he goes on, “Apart from those values, the challenge of the job also matters a great deal. I approach things in terms of both What are the facts and data? and What is the right thing to do? And I try to make sure that’s what we do. I can come across as a bit blunt from time to time, but there’s no point in hiding it.”

The challenge in integrating Shell and PZL-QS could easily be daunting. The Shell Lubricants US organization, though part of the huge Royal Dutch/Shell Group, is the smaller of the two pieces, numbering about 800 or 900 people, by Pirret’s accounting. Depending on what you include, he goes on, the PZL-QS staff included about 4,200 people and Jiffy Lube International about another 4,000. Outside the United States, the Shell Lubricants business is two to three times the size of PZL-QS. PZL-QS had held a 50% stake (along with Conoco Inc., now ConocoPhillips) in the Excel Paralubes Group II base oil plant, but the U.S. Federal Trade Commission ordered the divestiture of that asset as a condition of approving the acquisition. To the surprise of many, perhaps, Pirret expressed no concern over the divestiture, noting that the combined company would still have access to wholly owned and joint venture base oil manufacturing plants at Port Arthur, TX; Martinez, CA; and Deer Park, TX, in addition to numerous base oil plants outside the U.S.

Within a couple of months, though, the hard work of rationalizing Shell’s assets was in full swing, and belts were tightened even further in the base oil area, as well as throughout the rest of the organization. The new company was not even a month old when Shell announced that seven U.S. blending/packaging plants would be closed or sold in the second half of this year. Less than 2 months after that, Shell announced that it would discontinue the manufacture of Group I paraffinic and naphthenic base stocks and waxes at its Deer Park plant, and in February, the company announced that its Martinez, CA, naphthenics production would be shut down this fall. (The effects and expected benefits of these moves are outlined in the sidebar on page 14.)

The rapidity with which these decisions are being made and implemented might well reflect a bias of Pirret’s. In his career, for instance, he is perhaps most proud of the work he and his team did in Brazil as its markets were being deregulated and opened to foreign investment and competition. The transition to a semi-autonomous market economy, the layoff of a quarter of the Shell workforce in the country, and language and cultural barriers to overcome, Pirret says, offered an enormous challenge, entailing rapid changes in business practices and organizational structures. The changes were implemented not only economically, but with “due consideration to the people impacted by the change,” he says.

“We did it in the best possible way so that the remaining people could take the company in the direction we wanted to go,” Pirret adds. “I think there was a lot of excellent work on the people management side that helped us accomplish our objectives. It is one thing to make decisions, but implementing them in a responsible and ethical way is important.

“And it’s the same sort of thing that we went through last year,” he continues, showing how this past experience guides his management style still. “The reason that we went as quickly as we did in shutting down the blending plants was to get to certainty as quickly as we could so that people knew what would be happening to them, the company, and their jobs.” The aim was to get out of transition, he says, and “capture the synergies and get back to growth.”

An Eye on Growth

One should not doubt that growth is Pirret’S aim–both for Shell Lubricants and for the industry as a whole. “We’re not here not to make money,” he emphasizes. “We will compete, but we will compete by offering value to our customers and consumers. We’re not here to sell a commodity or to undervalue our products but deliver the performance our customers need at a price which is good for both them and us…. Do we expect to see a high-growth industry going forward? No, not in terms of volumes. But we can all grow the value of the business rather than the volume.”

He laments the loss of direct customer contact that he used to have, and he fears that his experience is not unique. “One of the concerns is that we have as a company, and probably as an industry, lost the direct customer contact that we have historically had in a lot of places. In, I suppose, the rush for cost-efficiency or whatever, we have tended to turn our attention to bigger and bigger customers, leaving the others or serving them indirectly. That has been good for other [lube marketers] because they have been able to come in and [serve some of those markets]. But I think that is not a healthy trend long-term–hat we have to get back the intimacy we had with the customers, thereby meeting their needs going forward.”

This is a specific focus for the new Shell Lubricants, Pirret says, in the area of engine oils (where it holds a commanding lead) and in the industrial lubricant markets (where its offerings are less well-known). “If there is a big performance difference between running one of our oils and running someone else’s oil that we can demonstrate, then we should be selling on the basis of that. I think that is an opportunity for the industry as well,” Pirret says.

Pirret specifically rejects the ideas that a supermajor’s lubricants organization cannot bring both personal attention and value to the table, although he admits that his company might be able to learn a few things from the independents. “I think the flexibility that a small, local lubes company can bring to the party is real,” he says. “On the other hand, some of the technological advances that the majors are making bring other advantages. I’m not sure it’s a black-and-white situation.

“I think the challenge to us is to bring the level of service to our customers that the independents can take to theirs,” Pirret says. “It’s not a matter of size. One of the things some of the supermajors have done is try to be all things to all people. And that is a no-no. You can’t take on specialties in every segment and expect to make money But there are opportunities there. You just have to select those where you think you can bring something to the party, which is what the independents do as well. There’s plenty for everyone.”

It is when he takes this sweeping view, when he is discussing corporate and industry growth—and the role of value (and values) in that growth–that Pirret seems most suited to his role as integrator of the largest lubricants organization in North America.

“I like building and fixing things,” he says. “The steady-state stuff is not terribly interesting. I prefer a course that involves solving problems. And there are always things to do and to think about. At the moment, the big challenge is to pull together what we have in the heritage companies and leverage that. I think there is a huge upside for us in that strategy. We know that as No. 1 in the world we have only 12% of the market, so we’ve got plenty to go for. The main thing is making the market value grow.”

Speedy Decision-Making Shows Certainty & Commitment

When Shell Oil Products US announced the closure of seven blending/packaging plants as part of its plan to capture more than $140 million in synergies from the integration of PZL-QS, the industry took notice. The plants will either be closed or sold in the third and fourth quarters of 2003, Shell says, and a regional distribution facility will relocate to Houston in late 2003.

“Our goal was to identify synergies and announce this plan as soon as possible,” Shell Lubricants President David Pirret said in a statement to the press. “Moving fast not only helps us realize the efficiencies of the acquisition, it also answers questions for employees at plants which are affected and those that are not.”

Not long thereafter, in December 2002, Shell announced that it would stop producing Group I paraffinic and naphthenic base oils and waxes at its Deer Park plant, effective March 31. The plant produces approximately 4,600 bpd of paraffinic oil, 5,000 bpd of naphthenic oil, and 800 bpd of wax.

The changing base oil marketplace and an anticipated disruption in lube crude from West Texas led to the decision to cease operations, the company said in its original media announcement. Pirret added in his recent interview with Lubricants World that the Deer Park plant had reached “the end of its natural life.”

Similar reasoning prevailed again in February, when Shell announced that it would cease the manufacture of naphthenic base oils at its Martinez, CA, lubricants plant effective Sept. 1, 2003. The lubricants plant produces approximately 4,500 bpd of naphthenic base oil, but margins have suffered in recent years.

Lubricants World will follow up on these developments in a March 2003 article that examines how the moves will affect U.S. and world naphthenic and Group I markets.  
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