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Financial Times: Shell to contract out its IT and phones

By Ed Crooks and Andrew Parker in London
Published: April 1 2008 03:00 | Last updated: April 1 2008 03:00

Royal Dutch Shell, Europe’s biggest oil company, has signed one of the biggest outsourcing deals of recent years with the award of more than $4bn worth of contracts over five years to manage its IT and telephone systems.

Almost 3,000 workers worldwide, roughly 1,800 on staff and 1,100 contractors, will be transferred to service providers under the deal.

The outsourcing package is part of Shell’s drive to cut costs to offset rampant cost inflation in the oil and gas industry, caused by shortages of staff and equipment.

Shell would not specify the savings from the deal but expected it would “make a significant contribution” to the $500m in cost savings it expected for the year.

AT&T, the biggest US telecoms group, won the contract for the IT network and telecoms, T-Systems, part of Deutsche Telekom, won the hosting and storage contract and EDS won the computing and integration contracts.

AT&T and T-Systems each said their shares of the contract were worth about $1.6bn, implying that EDS’s share is about $900m.

AT&T has over the past year been making a strategic push to sign big inter-national corporate customers outside its traditional base in the US, bringing it into head-to-head competition with BT of the UK.

BT, which sees this type of corporate business as one of its main sources of growth, also bid for the Shell contract but was unsuccessful.

More than 1,000 of the Shell staff affected by the contracts are based in Malaysia. Also moving are about 300 staff in the US, 210 in the Netherlands and about 170 in the UK.

Shell would not specify the location of the contractors affected but said they worked in various places round the world.

The move is part of Shell’s attempt to offset soaring costs that are putting pressure on oil companies’ profits, squeezing margins even with oil at $105 a barrel. -Capital costs in the upstream oil and gas industry have almost doubled since 2005, according to an index compiled by IHS and Cambridge Energy Research Associates, the consultancies.

Shell’s target of $500m in cost reductions represents less than 0.2 per cent of last year’s total costs of $297bn.

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