Supermajors dance to different beats

David Knott
London
[email protected]

The planned mergers of Exxon Corp. with Mobil Corp. and British Petroleum Co. plc with Amoco Corp. were inspired by monetary concerns.

Both Exxon Mobil and BP Amoco have been warmly welcomed by financial analysts, which see these megamergers as the only way to cut costs for companies that have restructured themselves as far as possible.

In their analyses of how the petroleum industry will work now that there are three supermajors, the pundits have generally complained that the third-Royal Dutch/Shell-is moving too slowly to keep up with the others.

The London branch of Commerzbank AG has been particularly critical of RD/Shell, saying that, unless it acts soon, it may become a takeover target itself (OGJ, Aug. 24, 1998, p. 32).

Shell Chairman Mark Moody-Stuart recently acknowledged concerns from the financial quarter when announcing the company's disappointing third quarter results.

Moody-Stuart said, "I am sure we are going in the right direction; but the environment we are working in, underlined by these results, clearly shows that we have to move farther and faster than we have been doing."

Money vs. vision

The supermajors all have to satisfy their shareholders, but there is a great divide between what financial analysts say and what many shareholders feel.

For example, in conversations with industry people who invest in petroleum companies, I have frequently been told that Shell's shares are sometimes not the best performers in the short term but are seen as a long-term, safe investment.

This view highlights an interesting dilemma because, looking farther into the future than any other major, Shell decided just more than a year ago to reinvent itself as a total energy company (OGJ, Nov. 24, 1997, p. 29).

Now Shell chiefs are under pressure to cut costs quickly. How they balance this short-termist outlook with Shell's long-term vision for development of sustainable energy resources will be critical to its survival.

Vision vs. money

For romantics who hope long-term visions outweigh the short-term concerns of bean counters, Innovest Strategic Value Advisors, New York, provides a disturbing analysis.

"Regarding climate change and renewable energy-two significant long-term issues for the petroleum industry-(Exxon and Mobil's) level of engagement falls far short of other companies such as BP and RD/Shell," said Innovest.

"In fact, Exxon and Mobil are among the petroleum industry's leading opponents of international moves to reduce the amounts of greenhouse gases entering the atmosphere.

"At the very least, however, this harmonization of opinion should help the marriage avoid the difficulties suffered by BP and Amoco, where BP's proactive stance on greenhouse gas emissions and environmental reporting contrasted sharply with its more skeptical and generally more recalcitrant partner."