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Tuesday, 2 April, 2002, 18:55 GMT 19:55 UK
Shell trails BP's lead
Share price graph comparing BP and Shell
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by Briony Hale
BBC News Online business reporter
line

As Shell announces plans to buy a much smaller UK oil producer, BBC News Online examines how the Anglo-Dutch giant has fared in comparison with its great rival BP

Shell, it seems, is playing catch up.

While the oil industry embarked on a period of intense consolidation between 1998 and 2000, Shell stood curiously aloof.

BP logo
BP's sparkly new look
This may have been a strategic decision, but it seems more likely to have come about from the lack of one.

Now the Anglo-Dutch energy giant, after a few false starts, has finally managed to notch up a couple of takeovers.

But it's not only in comparisons of size that Shell has some catching up to do.

It has lost its reputation as a mover and a shaker, an even worse fate than losing the top spot as the UK's biggest oil company to its archrival.

Meanwhile BP - the industry's star performer - is preferred by investors and has successfully awarded itself a shiny new green image.

Size matters

BP has the tremendous advantage of being seen as a mean, aggressive company, while Shell just plods on, Shell-like.

After extensive and costly research to give itself a new logo, it concluded that the familiar yellow and red shell was best.

Lord John Browne, BP's chairman
BP chairman Lord Browne: his firm has a mean and aggressive image

Shell's trouble is that it doesn't know how to make itself bigger and better.

First, let's not forget that Shell is still making plenty of money - $10.8bn last year to be precise.

But that's not enough to impress the markets, which demand growth.

And when you're already as big as Shell, it's hard to see where that growth can occur.

Acquisitions tend to be easier than organic methods, if the cash is at hand that is, and so Shell has finally headed down that path.

Consolidated out

Shell has bought the independent oil producer Enterprise for $6.2bn, and the US motor oil company Pennzoil-Quaker State for $1.8bn.

But while the size of those purchases might sound impressive, they're tiny when compared with the mega-mergers of days gone by.

Shell logo
Shell's old fashioned approach

BP bought Amoco for a cool $110bn, before following it up with a $30bn takeover of Arco.

Exxon bought Mobil for $82bn, while France's top oil firm Total bought Belgium's industry leader Petrofina before bolting on French rival Elf Aquitaine.

Once mergers of that scale have already occurred, then the whole industry is pretty much consolidated out.

And what remains are merely the left-overs.

While there are some advantages for Shell in boosting its North Sea reserves, analysts have already expressed concern over the deal to buy Enterprise Oil.

Enterprise's main holdings were in smaller North Sea oil fields, an area where Shell has been curtailing its own activities.

And some analysts have suggested that Shell's merger choice comes from desperation rather than a carefully executed strategy.

Meeting targets

The bottom line is that Shell is determined to meet its target of 3% growth in oil and gas reserves this year.

Oil companies have only bothered to start setting themselves targets in recent years.

Shell's chairman Phil Watts
Shell's Phil Watts is in need of a clear strategy

The once complacent and arrogant firms found they had fallen from grace and had become associated with the unpopular and dirty "old economy".

So the industry set out to impress its shareholders by assigning itself goals.

But, as any seasoned stock market observer knows, it's not the quality of those goals that counts - but whether you hit them.

Shell has already been forced to downgrade its growth rate to 3% from 5%.

Meanwhile, BP - the wise company - is busy trumpeting its past and future ability to hit 5.5% growth.

While Shell's acquisition strategy may be questionable, at least buying Enterprise will ensure it does not fall short of its latest goal and be outdone by BP - again.

See also:

02 Apr 02 | Business
Shell bids 4.3bn for rival oil giant
07 Feb 02 | Business
Shell profits ease at year-end
31 Dec 01 | Business
Tide turns against the oil firms
17 Dec 01 | Business
Shell to trim costs by $1bn
02 Aug 01 | Business
Shell profits continue to gush
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