Watts to take place of Moody-Stuart at Shell

Dec 19, 2000 01:00 AM

Mark Moody-Stuart steps down from the chairmanship in June 2001 after a roller coaster four years for the industry and its second biggest listed company. Phil Watts, a West Africa veteran and Shell lifer with a reputation for toughness, takes his place in a break with tradition at the Anglo-Dutch group, which has tended to alternate Dutch and British executives at the helm. But the current head of Shell's exploration and production was a popular choice with the investment community. "Watts is keen on cost cutting and is seen by us as a good replacement," broker Merrill Lynch said in research note. "He's the cost cutter and he's the one for the upstream," said a fund manager who attended the group's annual strategy presentation. "All in all I think it will be good for (Shell)".
Watts, a 55-year-old Briton who joined Shell in 1969, is seen as the steely edge of a company that has not always reacted as quickly as investors might have wished. "Last year the staff had capital discipline written on their shaving and make-up mirrors. I think they're now dreaming of capital discipline," Watts told the presentation. Shell said it now aims to raise cash returns to shareholders by 50 % each year over those in 2000 via dividends and share buybacks, opening up the huge cash reserves it has built up in the past year of ultra-high oil prices.
Shell is on target to deliver earnings on an adjusted current cost of supply basis of almost $ 13 bn in 2000 but has had to wait for Dutch tax changes before shifting an excess of cash off its balance sheet. The Dutch government this year approved legislation removing tax obstacles to the share buyback plans which Shell's giant competitors BP Amoco and Exxon Mobil have used extensively in recent years.

Group Treasurer Steven Hodge told the first repurchases of what could amount to $ 1.5-4.7 bn in the first year may come in a 35 day window after fourth quarter results on February 8. Buybacks, dividend payments and acquisition opportunities over the next five years should now raise gearing from close to zero at present to an aggressive 20-30 %. Shell said its focus on costs, capital discipline and performance would "enable us to continue to deliver strong growth and superior shareholder return, even if oil prices return to lower levels than seen".
Two years ago, in the face of the lowest oil prices in a generation, the group set cost-reduction and capital-return targets to improve performance. At the time, Shell said it planned to achieve annual cost improvements of $ 4 bn by the end of 2001. With around 90 % of that target expected to be achieved this year, Shell has now raised the target to $ 5 bn for 2001.
Oil and natural gas output grew by 6 and 8 % in the first nine months of this year, and Shell expects to sustain an annual growth rate of 5 % over the next five years. BP has a stronger growth plan of 7 % plus, but analysts believe it may struggle to meet this, and that Shell's growth and profitability profile may also be superior to the leading oil companyby market value, Exxon Mobil.
Growth is the key focus of energy investors at the turn of 2000, with the mergers and cost savings of 1998 and 1999 now seen as largely in place. Shell plans to underpin its longer-term growth by raising capital expenditure to around $ 12 bn a year over the next two years from $ 8.5 bn this year.

The group said its main businesses managed to deliver its targeted 15 % return on average capital employed (ROACE) -- a key industry performance indicator -- in the year to the end of the third quarter this year. This target was met after being normalised to assume a $ 14 North Sea Brent oil price, a level that Shell aims to continue to base its plans on. Brent futures currently stand at around $ 26.40 per barrel.
Shell said energy demand from countries outside the Organisation for Economic Cooperation and Development continued to drive oil and gas growth, and it was poised to take advantage of that growth. The group also confirmed it has proposed a plan for it and Saudi Arabia's state-owned Saudi Aramco to buy out their US partner Texaco's marketing and refining operations. Texaco, which is merging with Chevron, has stakes in Equilon and Motiva estimated to be worth $ 3-$ 7.5 bn and expects to be told by regulators to divest these holdings.

Source: Al Nisr Publishing
Market Research

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