This is Money
City Diary: Week ahead in the markets
Press Association
12 March 2010, 4:43pm
Attempts by Royal Dutch Shell to address its production difficulties will be in the spotlight next week…
Royal Dutch Shell chief executive Peter Voser faces a tough challenge on Tuesday when he presents the oil major’s strategy update to a sceptical City.
The Anglo-Dutch firm has to convince analysts it has the plans in place to turn around years of sliding production, as well as strip costs out of the business.
The pressure on Mr Voser – less than nine months into the job – has increased due to the improvement at rival BP, where Tony Hayward is leading a resurgence after years in the doldrums.
Panmure Gordon analyst Peter Hitchens said: ‘If you look at the way Shell is positioned, it is really losing ground. BP and Exxon are moving ahead.’
Production at Shell has slid to around 3.2m barrels a day compared with 4m at BP, as the firm pays the price for exploration cut backs in previous years, the analyst says.
With a large proportion of its oil assets maturing, it is having to spend at a time when refining margins have been hammered by weak global demand and overcapacity.
The $28bn (£19bn) it plans to spend this year is in the same region as its far bigger rival Exxon and well ahead of BP. But there is a big gap between committing to spend the money and getting oil out of the ground.
Shell has also been slow out of the blocks on cost-savings as the industry reacts to lower demand. BP stripped out $4bn (£2.5bn) last year, although Shell’s savings amounted to just half of this figure.
Mr Hitchens added: ‘If you look at the way the company has reacted they were late going into the restructuring and the other problem for Shell is that the production profile is dropping.
‘The company does have some great assets but they have just not been as dynamic as other firms,’ he said.