Newspaper article THE JOURNAL RECORD

Shell to Cut Investment, Write off Billions of Assets

Newspaper article THE JOURNAL RECORD

Shell to Cut Investment, Write off Billions of Assets

Article excerpt

LONDON (Bloomberg) -- Royal Dutch/Shell Group, the world's biggest publicly traded oil company, will slash investment and write off $4.5 billion of assets from refineries to chemical plants to reflect a year-long, 40 percent drop in oil prices.

The measures are part of a Shell plan to save $2.5 billion a year by 2001, to boost petroleum output and to sell less-profitable operations.

Shell warned Monday that business conditions are worsening and that the growth in the global economy will be half what was expected a year ago, weighing on oil prices. The moves are an about-face for Shell, which had sought growth in emerging markets of Asia and Latin America that have since slowed. It's also the most detailed strategy by Chairman Mark Moody-Stuart since he took over July 1. Shell aims to revive flagging returns as competitors Exxon and British Petroleum pursue multibillion-dollar acquisitions to boost profits and create companies that rival Shell in size. "Shell has been threatening to do this for a long time," said Rosario Ilacqua, vice president and senior oil analyst at Rothschild in New York. "It makes Royal Dutch stock look more interesting than it has been in a while." Investor reactions were mixed, reflecting Shell's bleak forecast for oil prices, which it expects will average about $14 a barrel for Brent crude in the next five years, down from last year's estimate of $18. Brent recently was trading at $10.12, compared with $17.80 a year ago. "The stock is down because of their long-range forecast for oil prices and their earnings in the year 2001," Ilacqua said. "Some traders were hoping for a big deal announcement. Hopes that a merger deal would be announced have been dashed," said Lysle Brinker, senior vice president and oil analyst of John S. Herold Inc. Moody-Stuart is anxious to regain credibility after Shell failed to boost its return on capital investment, which at 9.2 percent in the year to October is less than that of its two smaller rivals, Exxon and British Petroleum. Monday, Shell said its new aim was for a 14 percent return by 2001, less than the 15 percent rate promised last year. …

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