The Observer: Shell's cracks still showing: “…with exquisitely appalling timing - a week before the unification - Shell announced that one such scheme, its much-vaunted Sakhalin-2 liquefied natural gas project, was $10 billion over budget and well behind schedule.”: “Not only will this hurt the return Shell can make on the project, but it also hurts its credibility…”: “Now there are mutterings about further management heads rolling, with the focus on exploration and production head Malcolm Brinded.”: The new company has not had a harmonious birth and still looks a long way from finding its feet, let alone catching up with the likes of Exxon and BP on fundamentals.”: Sunday July 24, 2005
Oliver Morgan
After a century as a two-headed Anglo-Dutch monster, Royal Dutch Shell last week left the 20th century and launched itself as a single company on the stock markets of London and Amsterdam.
It was the culmination of a year of pressure from shareholders resulting in an acceptance - albeit apparently reluctant - of the need for change from a notoriously flat-footed management. But no sooner did the new company arrive than it was slapped in the face by investors. Royal Dutch Shell shares - there are now two categories, of which more below - fell, despite the fact that fund managers are thought still to be underweight in the stock.
Why? Well, it appears that the problems that the replacement of the dual board in the Netherlands and the UK was designed to combat have not gone away.
At the heart of these is finding oil - first simply replacing the 20-odd per cent of reserves whose controversial downgrading last year was the catalyst for a flurry of top-level resignations. Second is keeping pace with other majors - there has been little progress here, as chief executive Jeroen van der Veer last week accepted.
His response is to set up academies to train engineers to find what is left and extract it economically, aiming to replace 100 per cent of the company's oil and gas reserves by 2008. This is great in the long run, but investors want more.
With oil prices still high - well above what van der Veer believes is the long-run price - filling the hole via large-scale acquisitions appears to be out. Van der Veer is insistent that managing major projects is the way forward for Shell, and the use of asset swaps could help with this aim.
But with exquisitely appalling timing - a week before the unification - Shell announced that one such scheme, its much-vaunted Sakhalin-2 liquefied natural gas project, was $10 billion over budget and well behind schedule. Not only will this hurt the return Shell can make on the project,but it also hurts its credibility, which it had hoped would cease to be an issue after the unification, and hurts it in the area that van der Veer singles out as being most important. Now there are mutterings about further management heads rolling, with the focus on exploration and production head Malcolm Brinded.
There is disquiet also with the way in which the company went about the changes it has made. Shares have been split into 'A' - formerly Royal Dutch - and 'B' - formerly Shell Transport & Trading - and each are traded on both bourses. There is complexity in the arrangements: good for arbitrageurs, perhaps, but not for the company as a whole. And UK holders of former Royal Dutch shares were aggrieved at having to pay Dutch taxes on their holdings when the deal was done.
The new company has not had a harmonious birth and still looks a long way from finding its feet, let alone catching up with the likes of Exxon and BP on fundamentals.
http://observer.guardian.co.uk/business/story/0,6903,1534903,00.html
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