THE NEW YORK TIMES: Shell Turns a Stock Page but Has Chapters to Go: “A year and a half after a reserve scandal that sank Shell's stock, ended its reputation as a conservative company and forced the ouster of three of its top executives, the company is still remaking itself, analysts and investors say.”: “Shell deflated investor confidence again last week, when it said that costs at the Sakhalin II project, which it is leading, could double to $20 billion, and that the project might be delayed for half a year.”: "Where are the project-management skills Shell said they were going to demonstrate last fall?" Mr. McMahon said. "There is not enough in terms of pushing this company into a new place, and they're not going to get anywhere fast.": Wednesday 20 July 2005

By HEATHER TIMMONS

Published: July 20, 2005

LONDON, July 19 - Royal Dutch/Shell begins trading as a unified oil company on Wednesday, ending a century of divided Dutch and British rule and beginning what its chief executive, Jeroen van der Veer, promises will be increased accountability, clarity and flexibility.

Analysts remain unconvinced.

A year and a half after a reserve scandal that sank Shell's stock, ended its reputation as a conservative company and forced the ouster of three of its top executives, the company is still remaking itself, analysts and investors say. And the verdict on that effort is split.

Shell's top executives and board have carried out a huge structural overhaul, streamlining management and instituting new methods of tallying results, particularly in the exploration and production division, which finds reserves.

Shell, the world's third-largest oil company by market value, is also committing itself to an endeavor that most other oil companies are shunning, despite the high price of oil: exploring for big new oil fields.

Nonetheless, the criticism continues, in part because Shell sporadically delivers unpleasant surprises.

"It is still a long slog before this company is turned around," said Neil McMahon, an analyst with Sanford C. Bernstein & Company in London. "The problems they have are not going to get fixed in the near term, short of an acquisition."

Shell deflated investor confidence again last week, when it said that costs at the Sakhalin II project, which it is leading, could double to $20 billion, and that the project might be delayed for half a year.

"It is now clear Sakhalin II investment plans were significantly underestimated when they were approved in 2003," the head of exploration and production, Malcolm Brinded, said during a conference call.

Mr. Brinded has been forced to restate Shell's total proven oil and gas reserves several times since he took the job after the January 2004 reserve write-down. The company's reserve-replacement ratio, a measure of how fast it is finding gas and oil, stands at about 50 percent, versus the 100 percent or more that oil companies strive for.

"Where are the project-management skills Shell said they were going to demonstrate last fall?" Mr. McMahon said. "There is not enough in terms of pushing this company into a new place, and they're not going to get anywhere fast."

Some investors are willing to give Shell, until Wednesday a joint venture owned by Royal Dutch Petroleum and Shell Transport and Trading, more time, though.

The aggressive management of a former chairman, Sir Philip B. Watts, is often cited as the reason for Shell's reserve problems.

"Sakhalin was the Watts heritage," said Eric Knight, manager of Knight Vinke Asset Management, which has $500 million in assets including Shell shares.

Mr. Knight was one of Shell's harshest critics soon after its reserve scandal, and one of the most vocal proponents for structural change. But he says he has been buying Shell's shares ahead of Wednesday's unified trading date. "We're very comfortable with this position."

Shell's shares are expected to benefit Wednesday in part because they will be included in indexes in London and Amsterdam. But Mr. Knight says he is buying because Shell is looking at big long-term projects.

"In four or five years, Shell may be better positioned than many of its peers," he said.

Mr. van der Veer has promised to increase Shell's output 30 percent by 2015, in part through large projects like Sakhalin or Bonga, an offshore field in Nigeria. Shell is in three such projects and plans to add seven.

At least one chapter of the reserve scandal is nearly closed. Most of the litigation from the reserve scandal has been settled, with little harm to Shell's bottom line. The company has paid $151 million to British and United States regulators related to investigations, and $90 million to employees to settle a class-action suit.

One thing Shell is not being criticized for, though, is hiding information from investors, which for many was the most damaging part of the reserves scandal.

"They have been playing a very straight bat," said Tim Rees, a fund manager for Insight Investment, using a cricket analogy that means a player is responding to a challenge or a tricky ball by using a straightforward defensive shot, not an aggressive offensive one.

"You may not like all the information that comes out" of Shell, he added, but that is part of Shell's history.

http://www.nytimes.com/2005/07/20/business/worldbusiness/20place.html?oref=login

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