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HE'S CHANGING THE DRILL AT SHELL
An oil alliance is just one of CEO Carroll's new moves
Philip J. Carroll may be the biggest contradiction in the oil business. He's a dyed-in-the-wool Shell man, steeped in the language and perks of corporate life. And the Shell Oil CEO's love of process and structure betrays the heart of a petroleum engineer. But Carroll also sees a new era looming: Convinced that competition and information technology will alter the business for good, he has become the industry's leading advocate of deconstruction and radical change.
So it was no surprise to find Carroll at the center of the biggest U.S. oil-industry alliance yet proposed. On Oct. 7, Shell, Texaco, and Star Enterprise disclosed talks aimed at combining their 18,000 U.S. service stations, 13 refineries, and a score of transportation operations. If the deal survives antitrust concerns, it could create a venture with 18% of the U.S. gasoline market--almost twice the share of Mobil Oil Corp., the current leader.
It's the most dramatic move yet in Carroll's plan to turn Shell Oil Co., the $25 billion U.S. arm of Royal Dutch/Shell Group, from a slow-moving, vertically integrated giant into a "virtual" oil company--one focused on managing fewer segments of the business and relying more on partnerships. To that end, he has put Shell into more alliances than any other oil giant. "The secret to success," says Carroll, "is to be able to create new structures and forms that have a smallness about them--that have entrepreneurial spirit." Says George G. Daly, dean of New York University's Stern School of Business and a longtime friend: "To make the changes he has at Shell is just extraordinary."
"MORE NIMBLE." Carroll, 59, is the son of a New Orleans banker, "a good ol' boy from Louisiana who knows how to move people into action," says Vidal G. Martinez, a partner in the Houston office of attorneys Hughes & Luce LLP who has worked alongside Carroll on nonprofit boards. Indeed, since becoming CEO in 1993, Carroll has launched a wholesale revamping of Shell's operations. He has slashed employment 12%, to 21,000 workers, and molded key natural-gas, refining, and chemical operations into joint-venture companies with Amoco, Exxon, Petroleos Mexicanos, and Tejas Gas.
While it's too soon to judge the merits of such operations--most of the ventures were launched only this year--rivals and analysts say Shell Oil is further along than most in preparing itself for intensifying competition. "Shell Oil has done an excellent job of transforming itself into a more nimble company that lets individual business lines make decisions," says Salomon Brothers Inc. analyst Keith Petersen.
So far, the plan has borne fruit. Shell's operating earnings rebounded to $1.5 billion last year from a low of $20 million in 1991 and jumped 20% in the first two quarters of this year, thanks to firm prices. Return on capital, a key measure of the efficiency of its operations, is up to 10.2% of revenues, compared with 4.4% in 1993 (chart).
A successful combination with Texaco and Star Enterprise isn't a given. Beyond the question of regulatory approval, "these are big companies, and those type deals are more difficult because there's a lot of corporate pride involved," observes Phillips Petroleum Co. Chief Executive W. Wayne Allen. If the alliance thrives, though, analysts say it could further boost Shell's returns by trimming up to $600 million from operating expenses.
But Carroll wants more. "Profitability alone isn't enough," he says. "There has to be substantial growth." Unlike Exxon, Mobil, and Chevron, which have been disinvesting in the U.S. in favor of faster-growing markets overseas, Shell is confined by its parent to a market with a scant 2% annual growth rate. So Carroll is pushing his company into brave new worlds. In the Gulf of Mexico, where Shell is assured of enough oil and gas to keep it producing a good ways into the next century, a new Shell business unit runs a telecommunications network that links oil platforms. Its information-services staff is selling a service that helps corporations correct their computers to recognize the year 2000--a hot new market.
Carroll is driven to complete the company's turnaround quickly. With just a year to go before the customary retirement age for Shell CEOs, he already has assured that the changes he has begun will not be rolled back. Shell Oil has sent dozens of managers to training programs developed with Massachusetts Institute of Technology's Organizational Learning Center and consultants Innovation Associates Inc. The idea: prepare employees accustomed to Shell's old top-down culture to act as business owners, evaluating and taking appropriate risks. Such efforts have moved Shell far from its stodgy days. Soon enough, the rest of the oil industry may be forced to move with it.By Gary McWilliams in HoustonReturn to top