THE MAIL ON SUNDAY: Day of destiny draws near at troubled Shell: “Shares in Shell fell as low as 348p in the wake of the scandal, and while it has since regained its pre-crisis level, it is still lagging far behind rival BP…” (ShellNews.net)
19 Sept 04
LONG-suffering investors in Shell will hope that the coming week will mark a watershed in the oil giant's recent troubles.
The chairman of the Anglo-Dutch company, Jeroen van der Veer, will stand up in front of City analysts and top institutions on Wednesday to deliver the group's latest strategic plan. It will certainly be the defining moment of his career. It may well also be the defining moment for the future of the once-great Royal Dutch Shell group.
The company's shares have been nudging 420p for much of this month in apparent anticipation that this week's presentation will draw a convincing line under the difficult year and outline a clear path to recovery. The 420p mark is roughly where they stood at the start of the year before the firm's devastating announcement that it had overstated the scale of its oil reserves.
Shares in Shell fell as low as 348p in the wake of the scandal, and while it has since regained its pre-crisis level, it is still lagging far behind rival BP, which is up 15 per cent since the start of the year thanks to the booming oil price.
In what should have been a bumper nine months, Shell's shares have barely managed to stand still. The key for van der Veer will be to convince the City that the group can mend the holes in its reserves.
Analysts expect some shifts in priorities in its drilling business and possibly the sale of some wells to divert resources to those offering faster or cheaper delivery. There are also rumours that Shell could announce a strategic deal to boost output, possibly in Russia.
What most analysts definitely expect is news of some disposals in non-core businesses. Top of the list for a possible sale is Shell's 68 per cent stake in Intergen, an international power generating company. Shell's stake has been valued at about £3.3 billion.
The group has already hinted that it might sell its 50 per cent stake in Basell, a chemical company jointly owned with Germany's BASF. And the group may also indicate some disposals at the retail or distribution end of its business - known as 'upstream' operations in oil industry jargon. It has already announced plans to sell service stations in Spain, Portugal and Sweden. More could be on the way.
But when all is said and done, the real value in such disposals will be if they can provide cash to be invested in the vital business of finding and pumping oil to underpin those reserves.
Some oil analysts were taking a cautious stance late last week, with investment bank Dresdner Klein-wort Wasserstein cutting its recommendation on Shell shares from 'add' to 'hold'. Meanwhile analysts at JP Morgan took a more upbeat view: 'The seeds of recovery are there... the right presentation could provide the catalyst. Buy.'
The most cautious will want to see the fruits of a review of the group's
tangled corporate structure, which currently involves two share listings and two boards - one of each in London and Amsterdam.
On these matters, van der Veer has indicated that investors will have to wait until November for a fined verdict. Few doubt that the review will see the creation of a single board with clearer lines of responsibility, but some uncertainty is likely to remain until the new shape of the group is confirmed in black and white.
Meanwhile, despite gaining 3%p to 417V2P last week, Shell's shares were still out-performed by rivals and the wider market. BP gained 12p to 519'/2p. BP along with mining firms - also driven higher by strong commodity prices - helped the FTSE 100 surge to a two-year high on Friday, closing at 4,591, up 46 points on the week.
The surge is undoubtedly a good sign for the index, at least in the near term, but market watchers believe that the FTSE 100 and other leading indices are unlikely to move much higher, at least until after the US elections in November.