28 July 2016, Sweetcrude, Lagos — “The low oil price is an issue Shell struggles with. Shell’s strength is in technology, dealing with governments, and finding new oil. This is mainly an advantage when oil prices are high, but it always struggled with efficiency – Exxon, for example, is much better in this regard. That is more of a problem during a low price environment when keeping down costs – rather than finding new reserves – matters,” Professor Christian Stadler has said.
“A particular problem is the BG merger. Mega-mergers are always a big challenge and hardly ever are expected synergies realised. With the oil price not recovering – and unlikely to do so anytime soon – the pressure to achieve synergies are even higher and unlikely to be achieved.
“One of the main reasons for the merger was not efficiency but growth, particularly in gas. Unfortunately, growth is not what is required right now.
“It is not all bad: the pressure to make the company more efficient now will force Shell to take some tough decisions in the context of the merger which they could otherwise postpone. These are questions about where to shut down production, which projects won’t be pursued, and which assets should be sold.
“However, as this is an industry where investment decisions today will have effects for several decades, it will be crucial that Shell continues to invest in long-term projects even when the stock market punishes them for this at the moment. ”
*Christian Stadler, of Warwick Business School, is a Professor of Strategic Management, and wrote two books featuring Shell after spending four years inside the company researching it. He has also researched the oil and gas industry for more than 15 years.