Royal Dutch Shell (RDS-B)

ohjammer (< 20) Submitted: 8/02/07 11:04 AM : Start Price: $74.68 RDS-B Score: 17.43

This post is about fundamental internal management.

RDS has had huge success in buying its own companies - it got into the US in a big way when it purchased the remaining shares of Shell Oil Co (USA) and now its done the same with Shell Canada. It has had less success in replacing reserves organically.
This is a high tech E&P company - it can make hydrocarbons profitably in very bad geological conditions, and so it often gets the really tough fields when the pie is divided up by foreign governments. They are not as good as Exxon Mobil in creating low cost production facilities (example - Shell's new deepwater Nigerian facilities versus Exxon's Angola strategy of design once/build often/do it cheaper each time.
What RDS can do that Exxon Mobil can't do as well is to make the diplomatic deal and to have sustained presence in a country, no matter how difficult (examples are Nigeria, Lybia, Iran, and new efforts in Central Europe). This risked portfolio of international adventurism is also a weakness - a distributed structure of control helped lead to the reserves overstatements and the 25% restate.

I look to RDS to go to $85 within 2 years. Disclosure - I worked for RDS for 31 years and hold stock options.

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