Shell Profits Rise as Outsourcing Plan Moves Forward

Even as Royal Dutch Shell presses ahead with plans to outsource most of its IT operations, the European oil giant is enjoying healthy increases in revenues and profits for fiscal year 2007.

Shell will hold its fourth quarter earnings call Thursday, where it's expected to announce quarterly earnings of $5.82 billion. Added to the rest of the fiscal year's profits, the year-end earnings after expenses should tally near $27 billion—roughly 5 percent greater than 2006.

Shell, the world’s third-largest oil company and fourth largest corporation by revenue, launched plans earlier this month to outsource nearly IT 3,200 jobs—most in the United Kingdom and Europe—as part of a corporate-wide cost-cutting program. The company expects to save nearly $500 million a year through these organization changes.

"Royal Dutch Shell is in a good position to drive new, standardized ways of working through the company, to reduce complexity and speed up decision making," said Shell CEO Jeroen van der Veer in his strategic statement released earlier this month. "Operational synergies and cost savings should add some $0.5 billion to earnings each year, across the medium term."

Despite oil prices selling at record highs on world markets, a Shell and oil companies have come under increasing profit pressures as the cost of exploration and refining crude increases and erodes retail profits. In published reports, van der Veer has said that Shell’s production costs have increased more than 65 percent since 2005.

Shell reportedly began notifying its 3,600 IT workforce of its outsourcing plans earlier this month. The Anglo-Dutch company is mum on details, but stated in previous interviews that roughly 40 percent of its current IT staff is compromised of contractors. That means upwards of 1,800 full-time Shell employees could be affected by the outsourcing plan.

AT&T, EDS and Deutsche Telekom are reported as the leading contenders for the massive outsource contract. The company expects to implement the outsourcing plan by June.

One obstacle standing in the way of Shell's IT plans is union opposition. Amicus, a large U.K.-based manufacturing union, is challenging the plan because of previous changes in employee compensation plans.

Under revisions enacted last summer, Shell employees who lose their jobs because their positions were rendered redundant by other means would receive a package worth 50,000 British pounds (roughly $100,000). Previous to the change, workers were entitled to 200,000 pounds ($400,000).

There is no word on what, if any, actions the union may take to stall Shell's outsourcing plan.