The Independent: OUTLOOK: Why we can't be totally sure of the New Shell: “So New Shell it is but yesterday it came with a nasty reminder of Old Shell. With a grunt of disappointment but not the merest hint of a blush, the directors calmly told the market that they were probably going to have to unbook another 900 million barrels of reserves, having told everyone five weeks ago that they had capped the problem. In case you have stopped counting, this is the fifth time since January that the company has cut its proven reserves. Shell now has a third less oil under the ground than it said it had a year ago.” (ShellNews.net)

MICHAEL HARRISON

Oct 29, 2004

IF IT walks like a duck and talks like a duck then it generally is of the waddling, aquatic variety. To the untutored eye, an oil company which is headquartered in the Netherlands, owned 60 per cent by Dutch investors and run by a pair of Dutchmen who are answerable to a board containing a majority of Dutch directors might appear, well, Dutch. Not so, thunders the first-ever chief executive of Royal Dutch Shell, what you see before you is a truly international company. To prove the point, let me introduce you to my new finance director. He is Swiss.

The merger of the British and Dutch halves of Shell into a unified company with a single board run by the Anglo-Saxon combination of a chief executive and a non-executive chairman, is a seismic event by any standards. After a hundred years of living in the past with a dual-board, dual-company structure guaranteed to muddy lines of accountabilty and ossify the decision- making process, Shell is bouncing into the twenty-first century. In doing so it has leapfrogged other Anglo-Dutch concerns such as Unilever and Reed Elsevier who may have unified their boards but not their ownership.

Of course, a year ago the idea of Shell doing anything remotely like this would not have been entertained and would certainly never have seen the light of day. But that was before the reserves scandal which gushed up from nowhere in January and carried off the chairman, head of exploration and finance director in rapid succession.

Technically, the merger is a takeover since the Dutch arm of Shell will acquire the UK arm but it will not pay a premium for taking control. The quid pro quo, and it is a sizeable one, is that the new company's primary share listing will be in London. Dutch residency might be advantageous for tax reasons but when it comes to a location for accessing the capital markets, London knocks Amsterdam, and the Hague for that matter, into a cocked hat.

So New Shell it is but yesterday it came with a nasty reminder of Old Shell. With a grunt of disappointment but not the merest hint of a blush, the directors calmly told the market that they were probably going to have to unbook another 900 million barrels of reserves, having told everyone five weeks ago that they had capped the problem.

In case you have stopped counting, this is the fifth time since January that the company has cut its proven reserves. Shell now has a third less oil under the ground than it said it had a year ago and this year it will be lucky to replace half the oil it produces with new reserves. That makes Shell a shrinking company and if it wasn't for record high oil prices then the share price would be receding fast as well.

Having suddenly converted to the merits of capitalism as it is operated in the Anglo-Saxon world, Jeroen van der Veer, the chief executive of Shell has the means to recover that lost ground and begin to build the business again. On the surface, the directors of the New Shell say they are up to it and one or two of them may even be true to their word. But after a century of being run like the oil industry's equivalent of the Civil Service, it is likely to take this particular duck rather longer to adapt beneath the water line.