Financial Times: Shell begins corporate restructuring: “Royal Dutch/Shell on Thursday embarked on the historic dismantling of its 97-year-old corporate structure. But the news was overshadowed by a warning that it may have overstated its proved oil reserves by even more than previously admitted.” (ShellNews.net)
By James Boxell in London and Ian Bickerton in Amsterdam
Posted 29 Oct 04
Royal Dutch/Shell on Thursday embarked on the historic dismantling of its 97-year-old corporate structure. But the news was overshadowed by a warning that it may have overstated its proved oil reserves by even more than previously admitted.
The decision by the Anglo-Dutch oil group to recommend a full merger of its Dutch and British holding companies an option revealed by the Financial Times in August goes far beyond the demands of leading investors, who had been pushing for a combination of the companies' two boards.
Investors had blamed the company's byzantine management structure on the failure to identify and stop the reserves booking scandal, which led to the departure of three of the company's top executives.
Jeroen van der Veer, appointed yesterday as the first chief executive of the combined company, said not only would the new structure offer greater accountability and guarantees against auditing problems, it would also be “more performance-oriented, more competitive and less complex.
“Saying farewell to the collegiate system will enable me to speed up strategic decision-making and make sure we have the right project delivery,” Mr van der Veer added.
One person close to the deal said the merger was driven primarily by the need to improve Shell's “lamentable” decision-making processes.
Another priority was to bring the company in line with industry peers such as ExxonMobil and BP, who have left Shell lagging in the race to increase production and replace oil reserves.
Others close to the deal said the simplification of its structure would provide Shell with greater access to the capital markets and allow it to pursue all-paper takeovers. Shell missed out on the previous round of industry mergers in the 1990s.
Separately yesterday, Malcolm Brinded, head of exploration and production at Shell, said the group could be forced to unbook a further 900m of its 14.35bn barrels of oil reserves, and left open the prospect of further revisions.
The company had said that the 14.35bn barrels figure was compliant with regulations at the US Securities and Exchange Commission, which governs the reporting of oil reserves.
But Mr Brinded said yesterday that Shell had embarked on even more stringent reserve auditing, which had turned up the prospect of further downward revisions.
“It is clearly disappointing to be addressing a subject that we had put behind us,” he said. “People may ask why we have made changes to figures that we said were correct before.”
Mr Van der Veer said the announcement of the possible revision showed Shell was now a company “where bad news travels up fast”, in contrast to the past.
Investors welcomed the merger as providing far clearer lines of responsibility and quicker decision-making but analysts warned that it did nothing to address Shell's basic problem in finding oil.
Mark Iannotti at Merrill Lynch said: “Quite frankly, we would have called the shares sharply lower this morning on the reserves news had it not been for the announcement of the unification.”
Shell's shares rose 11-1/4p to 435p in London.