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Voser’s Shell Overhaul May Signal Output Revival in BP Fight

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By Fred Pals

Feb. 1 (Bloomberg) — Peter Voser is using lessons from his two-year stint rescuing Swiss engineering company ABB Ltd. from near bankruptcy to turn around Royal Dutch Shell Plc by selling assets, cutting thousands of jobs and speeding up decisions.

Not only has Shell suffered six years of falling output, it’s been overtaken as Europe’s biggest energy producer in terms of market value by BP Plc for the first time since 2006.

Voser’s challenge at Shell is to take out layers of management while investing $28 billion this year to keep the company in the top league of oil majors. In recent years, Shell has struggled to maintain output levels because of lackluster exploration efforts and the company’s reluctance to do the major deals that helped rivals BP and Exxon Mobil Corp. bulk up.

“Anybody can cut costs but it’s much harder to do so in a way to build a solid foundation for the future,” said Gary Steel, a senior executive at ABB who worked alongside Voser at the Zurich-based company in the early part of the decade. “For Shell he is doing absolutely the right thing, he’s taking out the bureaucracy.”

Analysts say his efforts are paying off. In his first six months he merged units and cut about 5,000 jobs, including senior management posts. About 15 percent of Shell’s refining capacity was placed under review, while the company is also scaling back on expansion in Canadian tar sands.

Of 40 analysts following the stock, 25 have “buy” recommendations and only five have a “sell,” according to Bloomberg data. The average target price calls for an 18 percent increase in the stock over the coming year.

Operating Costs

In an interview at the World Economic Forum in Davos last week, Voser, 51 and an avid mountain-hiker and skier, said he’s willing to cut more jobs to keep operating costs down and improve Shell’s performance.

“Some of the consumption-driven demand is not coming back, so I’m rather more pessimistic for the first half of the year than I am maybe for the whole year or the second half,” he said.

Voser, who succeeded Jeroen van der Veer, inherited the industry’s biggest spending program in 2009 in the middle of a global economic crisis that forced oil companies to delay some projects and cancel others.

Voser’s efforts have yet to win over investors. Shell’s class-A shares are down 3.3 percent in the past year, compared with an 18 percent advance for London-based BP. Under Tony Hayward’s stewardship, BP has regained favor after projects came onstream and he tackled the refining problems that helped sour the last years of his predecessor, John Browne.

On Track

Hayward, who is more than two years into his own turnaround program, has already reversed a decline in output by ramping up the Thunder Horse platform in the Gulf of Mexico to more than 300,000 barrels of oil equivalent a day, and doubled a cost-savings target.

Voser is confident that The Hague-based Shell will regain its title as the region’s foremost oil producer.

“I have the clear objective to be the best,” he said in November. “It will take some time, but we’re on track to get there.”

Voser’s priority is to revive production growth with new projects in Qatar and Malaysia after output fell below 3 million barrels of oil equivalent a day. Production has been falling for six straight years and is poised to decline for a seventh. Voser has already admitted that he’s no longer pinning his hopes on Nigeria, where Shell’s operations were plagued by militant attacks in recent years.

Output Boost

He expects natural gas to make up more than half of Shell’s production by 2012. Gas must get “much more on the agenda as its potential role is underestimated,” Voser said in Davos. So far, Shell has shied away from deals on the scale of Exxon Mobil’s $31 billion acquisition of XTO Energy Inc.

“Production growth beyond 2012 will be his biggest challenge,” Gudmund Halle Isfeldt, an analyst at Oslo-based DnB Nor Markets, said in an interview. “He will be successful in simplifying Shell and the company has a higher cost-cutting potential than BP with a lot of overhead costs,” Isfeldt, who has a “buy” rating on the stock, said.

Shell’s CEO has some way to go before matching his achievements at ABB, now the world’s largest builder of electricity networks.

While chief financial officer of ABB from 2002 to 2004, he helped secure about $4 billion in asset disposals and trimmed debt after asbestos lawsuits and slowing demand threatened the company with collapse. The company returned to profit in the first quarter in 2004 after six consecutive quarterly losses.

‘Hard Restructuring’

“ABB had to go through a hard restructuring and that brought some success and Voser was part of that,” Thomas Lusetti, a senior fund manager at Verwaltungs- & Privat Bank in Zurich, said in a phone interview.

Voser quit Shell in 2002 after two decades with the company when Judith Boynton became the first outsider to be appointed chief financial officer. Boynton was demoted in 2004 following a reserves scandal after the company was forced to slash its proven reserve estimates.

Apart from two years at ABB, he’s worked at Shell in various positions since 1982.

Voser has held finance and business roles for Shell in Switzerland, Argentina, Chile and the U.K. He graduated in business administration from the University of Applied Sciences in Zurich in 1982 and in April 2005 was appointed to the board of directors of UBS AG, a post he will leave this year.

“New leaders should do new things,” Van der Veer wrote in “My A to B,” a collection of speeches, articles and letters published by Shell on his retirement. “We should make these changes work.”

–With assistance from Stanley Reed in London and Francine Lacqua in Davos. Editors: Stephen Cunningham, Guy Collins

To contact the reporter on this story: Fred Pals in Amsterdam at +31-20-589-8563 or [email protected]

To contact the editor responsible for this story: Guy Collins at +44-20-7330-7521 or [email protected]

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