Oil major Shell’s move to leave as many as 10 countries can only be a “good thing” according to a leading professor of strategy.
Christian Stadler, from Warwick Business School, said he expects the operator will close countries “less important” to its overal strategy.
Earlier today the company revealed it would be curbing spending and looking to strengthen its financial position.
Chief executive Ben Van Beurden said: “I see important opportunities for Shell from the substantial and lasting changes underway in the energy sector.”
The company will now focus on three areas – cash engines, growth priorities and future opportunities.
Cash engines will encompass conventional oil and gas, integrated gas, oil sands mining, and oil products. Growth priorities will cover deep water and chemicals. Finally, future opportunities will include shale and new energies.
Stadler said in comparison to other companies like ExxonMobil, Shell has been typically very de-centralised in comparison with each country it is established in having a lot of autonomy over its work.
He said:”Of course a disadvantage of this, however, is it is quite costly in comparison to the centralisation of Exxon. With it also being less efficient, it isn’t surprising that cost saving factors have led them to revisit this strategy following the BG merger.
“I would expect when it revisits its country portfolio it will close countries less important to its strategy overall.
“In the oil industry there are many quirks and peculiarities when it comes to running a business. It is very possible to have a well drilled, but the whole process slowed down by permits and other forms of bureaucracy. So a rig can be established, but sat doing nothing and in essence wasting millions. Issues can vary from regulatory, political and even cultural differences.
“A less active profile in some countries, therefore, can only be a good thing. Shell focusing on where it is more established and more confident about therefore makes sense from a cost-cutting perspective.
“The sensible thing would be to cut down areas of smaller production or greater expense. Having said that some activities, such as the Gulf of Mexico are high risk, high reward for Shell. So it needs to focus on where its expertise lies, such as offshore and now LNG following the BG merger.
“In terms of internationalisation generally, the common wisdom is that diversification is more difficult and internationalisation easier, but this is not the reality, lots of big ‘global’ companies have struggled with this. Just take the example of HSBC in the banking sector, it is seen as a global business, but has still been cutting down costs itself. Internationalisation shouldn’t be seen as a default for everyone.
“The volatility of the oil market is no doubt another reason for Shell to be looking to change its strategy in this way, with no immediate signs of recovery.”
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