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Shell chair Andrew Smith vows to rein in costs as downturn bites


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ANDREW BURRELL: July 15, 2016

Shell Australia chairman Andrew Smith says the downturn in the oil and gas industry has strengthened his resolve to rein in costs as he seeks to integrate the company — the nation’s biggest foreign investor — with the Queensland assets of BG Group.

“You have to treat every dollar like it’s your own,” Smith tells The Deal, published in The Australian today, as he reflects on his 30-year career and the massive changes that have hit Shell and the petroleum industry. His mantra even extends, Smith’s colleagues reveal, to their boss’s insistence a few years ago that newspaper subscriptions be pared back in the company’s Melbourne office.

In February, Shell took control of the $US20 billion Queensland Curtis LNG project, the first of three big LNG projects to export from Gladstone. But that deal added about 1200 employees to Shell’s books and the company is in the process of axing hundreds of jobs in Australia, mainly in Brisbane and Perth, amid what is likely to be a protracted oil price downturn.

The Perth-based Smith is also deeply conscious of the potential for cost blowouts on Shell’s biggest project in Australia: the radical $US12bn Prelude floating liquefied natural gas project that is being built in Korea and will eventually be moored off the far north coast of Western Australia.

Smith, 51, reveals the origins of his careful approach to costs began when as a 35-year-old he ran Shell’s operations in Fiji during the 2000 coup that overthrew the government of Mahendra Chaudry.

“During the coup in Fiji we had to be very cash focused because there is no way you’re going to bring more cash into the country when you don’t know what’s going to happen,” he says.

“We ran the business by the bank balance every day — that was so enlightening.”

Fast forward 13 years and Smith admits he was shocked at the money that was sloshing around the oil and gas industry when he moved to Perth as country chair when the boom was still running. “It was tough for a man from the ‘downstream’ business coming into ‘upstream’ in full flight like that — there is a different approach to money,” he says. But now the boom is over, Smith says he has to ensure Shell is “fit to fight”.

“I’ve been in the business for 30 years — I’ve seen these cycles before and you’ve always got to pay attention to costs,” he says. “It’s much better to keep that focus through the really good times because you’re much better set up for the tough times.”

Before the latest round of redundancies, Shell’s Australian arm employed about 1200 people in Queensland, 1000 people in Perth and about another 100 in Melbourne. But Shell is not alone in cutting workers. Chevron and local players Woodside Petroleum, Origin Energy and Santos have each sacked hundreds of employees in Australia the past year.

Smith said earlier this year that the gas industry should collaborate in order to improve its international competitiveness and the “most important challenge” it faced was to reduce costs and increase the efficiency.

Shell in February reported an 87 per cent slump in annual net profit to $US1.94bn ($2.55bn).

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