Shell BP Mega Merger: Fact, or extremely well informed conjecture?
It was this article, followed by the oil price crash, which led to the growing speculation about a Shell BP Mega Merger.
By a confidential contributor.
Shell BP Mega Merger: Fact, or extremely well informed conjecture?
…its a typical dark, smoke-filled room where two teams of senior people – top echelon, Board level types, not the operational guys who run organizations these days – are discussing a thorny problem. The structure of the industry is changing: the mega-mergers of the 1990s, which brought BP to scale, saw ExxonMobil become the world’s biggest company and made Chevron and Texaco join hands are almost forgotten and a new world order has emerged. The state oil companies from the resurgent Russian and nascent Chinese super-powers now sit at the head of the negotiating table and the rules of the game are changing. Some of the world’s oldest and largest IOCs are no longer big enough to compete and its time, according to the bankers and consultants, for a ‘game changer’. Unless there a bold move is made, the under-funded pension pots and comfy Board appointments – not to mention more than one Royal family investment portfolio – are all at considerable risk. People are worried.
The consultants speak first. They are a well-known firm, albeit one that is still reeling from seeing a former head partner imprisoned for insider trading and yet his successor is now one of the worried Board members of one of these two so-called ‘players’. They had a team of fifty consultants in their London offices supporting one company and cracked re-entry to the other one with the Enterprise acquisition and have since in effect taken over there. The conversation might go something like this:
“We think this new organisation, where the two firms merge, needs to be designed from the top-down. It’s the only way: the two companies are actually really similar in structure and the slow drip feed of sales of downstream portfolios out of both companies has drastically reduced the extent of downstream competition. We know the merger wasn’t possible ten or even five years ago… but it’s a different world now. Firstly, company A is a sitting duck in the US now after events over the last few years: it’ll never recover its position and credibility and ExxonMobil and Chevron will make sure that it stays that way. Company B on the other hand is still a big player in the US: indeed many Americans think it is a US company and it doesn’t work overly hard to dispel that notion. So the merger makes sense from the US perspective and let’s face it, while the competition will squeak it’s not a US deal.
The issue then is the European regulator and that will be the harder one to solve. But look what we’ve done already in the last few years: we’ve pulled out of several entire markets…sometime by accident at the same time (like Greece). Others, later on, were in a more carefully staged manner. Sure, Germany presents a problem but we’ll crack that and we were never the players in France anyway. The UK government will bleat but actually this is not about two UK companies any more: these are ‘European’ firms and anyway, the UK government knows that the size of these companies means they make up the majority of most pension portfolios of most investment companies. They daren’t rock the boat and they will realise that in the end, competition means that a decent sized European operation is needed to take on the Russians… don’t forget that the UK sold off almost all its oil reserves on the cheap in the ‘80s to save the Americans and they don’t want that in the open.
So who do we have and who do we need? Well, you can’t have a ‘foreign’ national at the top of this thing, nor one who is a Finance guy and not from the business: equally having an American CEO might be an issue but it’d be a great way to sell this firm as global and not European and not face that eternal squabbling between the Brits and the Dutch over who is boss. Sure, the Dutch would need to have someone on the top table but they screwed up in the ‘90s with their talent pipeline and the cupboard is pretty much bare. You’d have to find someone also who isn’t tainted by the Reserves scandal… sure, that was ten years ago but it isn’t forgotten and some of those who were left were clearly not guilty. So you need a Dutch guy to act as a company number two/deputy. This guy would run the integration and be groomed for the top spot, at least theoretically so he’d have to be young enough to stick around and credible enough that he’d run one of the two firms originally.
So we’ve an American, a Dutch guy – have to now find some Brits to plug in here. That’s easy: the next role is the CFO and that falls automatically. Again, you’d need someone not associated with the Reserves and yet who has both the age profile and seniority to do this role yet wouldn’t walk whilst we moved the chairs for the top spot and he got excluded. Job done. Next, the operational roles. We can argue about the viability of downstream for ever but that monkey stays with us for years simply because of the scale of the revenues and the trading profits we make. So, we have to have it: and that means we take the guy from Company A and let the guy from Company B go, he’s not a player. The same in reverse for the Upstream: Company A is a dead duck in exploration these days and while Company B is no great shakes either, its reputation is still intact. We would split this business up three ways – International, US and Gas and that structure already is in place. Almost too easy.
There are then the back office roles. HR, IT, etc – and especially Legal: these need warm bodies too. That rolls nicely. Legal is the crucial one and that goes straight to Company A but we’d have to get the Company B guy out of here quickly. The fixer who did the company B integration isn’t going anywhere and could do the merger leg-work for the Dutch deputy. The H&S guy would come from Company A and so would the IT guy: the Company B guy is US and hasn’t moved on after nine years so would likely hang around and drop into the infrastructure combination with the right incentives.
We can’t have too big a board though so why don’t we combine these functions with Strategy and make it the ‘growth’ position for the next-but-one CEO: it also allows us some overspill in case of an accident or a walk at the top level that we didn’t foresee. Accidents do happen after all. We’d have to give the HR role to Company B to balance and probably have to be a Dutchman: they have only got at best two top seats in this whole team and one of these is just a courtesy one. They’d go ape, so we’d throw them the bone of the main HR role and now they have three main runners. Sorted.
Wait! We’ve missed a trick. It’s an all-male Board… makes sense in the industry but not going to go down well with the voters. How about we throw a token female into the mix: there isn’t a real space left at the table here but we’ve got to do something and let’s not forget that one of these two firms has made a great play out of going green… the other has upset people badly with what it’s done, or rather failed to do, in the Arctic. Never mind that these alternative energy businesses are just a window-dressing: we have to have them and by a stroke of luck, we have a lady who takes this role.
So to summarise then… a ten person top team comprising the operating functions reporting to an executive committee of five people. The initial split would be three US, four UK and two Dutch plus one extra to show there is no barrier/bar and its up to the Dutch to come up with the goods in terms of people but in reality they would now have 3/10th of the joint company and so are less able to throw their weight about – plus they get the pick of the functional roles and can start to rebuild.
How would this work? We’d need to push the Company B guy early and let his replacement make a name for himself as a ‘mover and shaker’. Company A still needs time to rebuild its reputation and finish the litigation. We can’t make this happen now with that monkey on our backs but if we start now we can lay the ground work. We get the people we want in position in their current companies and make sure that those people who aren’t needed are walked out and backfilled with placeholders.
- Bob Dudley…………..US…………BP……….CEO
- Ben van Beurden…..NL…………RDS…….Deputy CEO/Integration
- Simon Henry………..UK…………RDS…….CFO
- Rupert Bondy……….UK…………BP……….Legal
- Bernard Looney…….Ireland…..BP……….Strategy and Functions
- Iain Conn……………..UK…………BP……….Downstream
- Andy Brown………….UK…………RDS……..Upstream – International
- Marvin Odum……….US………….RDS……..Upstream – Americas
- Maarten Wetselaar..NL………… RDS……..Gas
- Katrina Landis………US………….BP………..Renewables
Real chance BP and Shell will merge
Extracts from an article by David Taylor published by The Motley Fool on New Years Eve 2014 under the headline:
“Is It Safe To Stick With BP plc And Royal Dutch Shell plc, Or Should I Get Out?”
Royal Dutch Shell has five undeveloped projects in total (Carmon Creek, Bosi, Gato Do Mato, Bonga, Yucatan and Athabasca). They all require an oil price of at least US$95 per barrel to break-even. So yes, it’s not looking good on that front. Morgan Stanley says the price of oil could fall to as low as US$43 per barrel; …if the price falls further, there’s a real chance BP and Shell will merge, creating a potentially exciting investment opportunity.
Former Shell exec Mark Carne in firing line again
The Guardian newspaper has published an article about the rail travel fiasco in the UK at Christmas.
Extract
Senior executives at Network Rail are likely to be summoned to Westminster to explain the engineering overruns that caused chaos for Christmas travellers over the weekend.
Mark Carne (above right), the chief executive of Network Rail, is once again in the firing line. He has been on holiday over the Christmas period leaving the rail travelling public to suffer from his incompetence, for which he is to receive a bonus of up to £135,000.
What a shame those that appointed this flawed former Shell executive never heeded the alarm bells we set ringing:
CEO Ben van Beurden finally endorses Shell Business Principles
By John Donovan
After our long campaign for Ben van Beurden, the Chief Executive Officer of Royal Dutch Shell Plc, to sign Shell’s statement of General Business Principles, he has at last got round to doing so.
I do not know what the reluctance was about, or why it took a year of cajoling on our part, in a succession of articles, for him to finally sign on the dotted line endorsing the document.
The long delay raises questions about the priorities of RDS senior management and their commitment to upholding the claimed principles and values.
How can these claimed values have any credibility given Shell’s atrocious track record in places like Nigeria, Ireland and the Arctic. What we have actually seen is dishonesty, corruption, cover-up, tax dodging, and incompetence leading to over-promise and under-delivery on major projects.
Perhaps that is why Ben van Beurden has so reluctant to associate his name with the document.
The Fate of BP
…if prices remain in the region of $60 per barrel, then the current scenario would be retained for a longer period of time, exposing it to takeover bids. Also, if Royal Dutch does indeed takeover BP, it could work out well for both companies.
Extracts from an article published by GuruFocus.com on 30 Dec 2014 under the headline:
British Petroleum Is A Buying Opportunity To Explore With “Sudden Dips”
British Petroleum remains a buy, despite being a size lower than some of its competitors mentioned above. Its market capital of £74.6 billion ($116.5 billion) is dwarfed in terms of Royal Dutch Shells £208 billion ($323.85 billion), which might put it at risk considering the strategic issues at hand. With the uncertainly looming over the entire industry, experts feel that the company might be unsafe as a medium term investment, but there are clues to express otherwise.
According to sources like Forbes and IB-Times, Royal Dutch could be in the race to bid for some of the British oil major’s assets, which might sweep ion a new wave of optimism, putting in a position of a being a “buy” company. But since no confirmation has yet come through, there isn’t a credible source of attributing optimism for a price rise for BP shares on an immediate basis.
Conclusive thoughts
The first two quarters of 2015 will determine the fate of British Petroleum. If oil prices stabilize to around the $80 per barrel price bracket, British Petroleum might experience more stability, would perhaps be able to control capital expenditures more systematically, and may not also have to incur the higher the high attrition it is doing currently, and also feel easier to pay sizable dividends to its shareholders. But if, prices remain in the region of $60 per barrel, then the current scenario would be retained for a longer period of time, exposing it to takeover bids.
Also, if Royal Dutch does indeed takeover BP, it could work out well for both companies. The reason is, from profits to costs, everything would be shared, and with the current scenario, lesser costs would mean better margins for both the companies. Comparing Royal Dutch in terms of size, their buying into BP would send their shares into a rally for a short duration of time, which if capitalized upon, will cement its position as a “buy” for some time in the future. Hence, investors should stay calm and keep watching the future moves of BP.
Shell Plans To Boost Ethanol Production In Brazil
How Royal Dutch Shell Intends To Boost Ethanol Production In Brazil
Bidness Etc looks at the progress Shell is making in the joint-venture with with Cosan Limited to boost ethanol production in Brazil over the next ten years
By: MICHEAL KAUFMAN
Published: Dec 30, 2014 at 7:19 am EST
Published: Dec 30, 2014 at 7:19 am EST
The joint-venture between Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and Cosan Limited(USA) (NYSE:CZZ), called Raizen, plans to spend nearly $1 billion on building ethanol production facilities to increase its biofuel output by 50%, according to the Financial Times (FT).
Cosan Limited intends to build eight ethanol plants over the next ten years, for an estimated cost of $930 million (2.5 billion reais). The plants will produce cellulosic ethanol fuel using sugarcane waste as its primary raw material, the most efficient source of biofuel. The first of eight plants was completed last week, and has an annual capacity of 40 million liters. After the completion of all plants, the company expects biofuel output to increase 50%.
Several ethanol producers in Brazil struggle to break-even, such a significant investment from Shell will boost morale of the industry. The commercial viability and prospects of second-generation ethanol have been enhanced after years of research and experiments.
Production of alternative fuel from biodegradable waste has been long touted as a landmark for the fuel industry. It promotes efficiency and productivity, while offering environmental benefits. Experts claim that the ethanol fuel model is sustainable only in Brazil as the country has advanced agricultural technology and vast acres of land.
As far as the cost is concerned, producing second-generation cellulosic oil is more costly than that of ethanol, produced from other sources. Raizen’s Agro-Industrial Director, Joao Alberto Abreu, expects costs to decrease over time as enzymes needed for production become more easily available.
Brazil is the biggest ethanol producer in the world and one of the biggest exporters of biofuel. Many ethanol producers have been struggling for the past few years but there are encouraging signs as domestic demand for ethanol is on the rise, while the opportunity to export cellulosic ethanol might grow in the near future.
The TRUTH will set you FREE.
ARTICLE BY BILL CAMPBELL, RETIRED HSE GROUP AUDITOR, SHELL INTERNATIONAL
