Growth through acquisition
In the 1980s, Shell sought to grow through acquisition. It bought out the remaining 30% shareholding in Shell Oil in 1985 to consolidate its American operations. This was a period of consolidation in the industry through mergers and acquisition activity – a necessary move as trading conditions became difficult. Shell also sold down its stockpile, anticipating to some extent the coming weakness in the oil price.
Plummeting oil prices
In 1986 the oil price collapsed. OPEC had lost power in the market place as other non-OPEC sources came on stream, including the North Sea output. It had initially tried to ignore price pressures through cutting production but it abandoned this strategy in late 1985 and turned on the taps. The price fell over the winter from $31 per barrel to $10.
After years of living with a high oil price, the Group had to adjust to low prices, requiring a change in the way it judged investment projects. The budget was halved within two years: the company had to work much harder to develop new projects more cheaply. Intensive research led to huge improvements in drilling techniques such as slim-hole drilling and directional drilling. The use of 3D seismic became widespread.