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THE WALL STREET JOURNAL: Shell finalizes planned shake-up

January 2, 2008

LONDON — Royal Dutch Shell PLC is finalizing details of a corporate shake-up aimed at cutting costs, as the side effects of sky-high oil prices pose a challenge to profits at major oil companies.

High oil prices, once a key contributor to the earnings growth at oil majors, are hurting refining margins, or the profit a refiner makes by processing crude oil into fuels like gasoline or diesel. The high prices are also driving governments to seek better terms for production contracts — at the expense of major oil companies.

As a result, most oil majors reported year-on-year profit declines for the third quarter, even though crude oil flirted with $100 a barrel. Anglo-Dutch Shell looked like a rare exception, with headline third-quarter net earnings up 16%. But the figure concealed a 13% drop in profits excluding inventories and one-time items, which analysts consider a better reflection of the company’s financial performance.

The planned changes at Shell include outsourcing about 3,000 jobs in the information-technology department, cutting some finance positions, reshaping expatriate packages and restructuring Nigeria ventures. Shell’s moves echo a similar though farther-reaching initiative at rival BP PLC designed to reduce overhead costs, streamline management and improve operational efficiency.

Shell intends to transfer “close to 3,000 positions” from its IT staff to outsourcing companies, according to a Shell newsletter obtained by — a Web site critical of the company. The document says IT staff will receive a letter in early January telling them whether they will remain in their current position.

A Shell spokesman confirmed that the company is reviewing the IT unit’s future. “We can confirm we’re in discussions to outsource a substantial part of our IT infrastructure services to three suppliers,” the spokesman said. “We are in the middle of commercial conversations and expect contracts to be signed in 2008, at which point we will share more details.”

A Shell spokesman said Monday that the company is also looking to cut staff in its finance and human-resources departments. But the Shell spokesman said “there is no plan to reduce staff numbers in a top-down, prescriptive way.”

He noted that the company is also increasing the number of engineering staff and other specialists. “We have hired some 3,000 graduates and 9,000 experts since 2005,” he said. In Nigeria, Shell’s largest oil-production area outside the European North Sea and the U.S., the company also plans to cut costs and jobs as it faces pressure from the government to change the terms of its contracts and suffers from local insurgent attacks. The new organization is due to be effective in April.

Indeed, as it moves to reshuffle staff, the company is also rebalancing its expatriation system to attract more talent to riskier places such as Nigeria, Russia and the Middle East, one Shell manager has said.

–Guy Chazan contributed to this article.

Write to Benoît Faucon at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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