THE WALL STREET JOURNAL: Shell Shakes Up Corporate Structure: “But in a sign the controversy isn't over, Shell also warned it may have to further slash its oil and natural-gas reserves.”: “…a reduction of about 6%. This came after previous assurances it had finished cleaning up its reserves accounts. The additional "debookings" would mean Shell has reduced its tally of reserves 28% from what it said it had December 2002.”: Mr. van der Veer and Aad Jacobs, currently nonexecutive chairman of Royal Dutch Petroleum and slated to become the new company's independent chairman, also received warnings about reserve issues ahead of the January disclosure, raising questions about their roles in the scandal.”: ”Regulators continue to investigate the role of individuals in the controversy, and the U.S. Justice Department is conducting a criminal probe.” (ShellNews.net)
Joint Ownership Will End;
Further Reserve Cuts Seen
As Energy Audits Continue
By CHIP CUMMINS
Staff Reporter of THE WALL STREET JOURNAL
October 29, 2004; Page A3
LONDON -- Royal Dutch/Shell Group said its Dutch and British parents will merge under a single board and a U.S.-style chief executive, in a sweeping restructuring meant to right the oil company after this year's energy-accounting scandal. But in a sign the controversy isn't over, Shell also warned it may have to further slash its oil and natural-gas reserves.
The planned merger calls for shareholders of Royal Dutch Petroleum Co. of The Hague to exchange their stock outstanding for shares in a new entity to be called Royal Dutch Shell PLC. The new company then will acquire Shell Transport & Trading Co., of London, in another share transaction. No money is changing hands. The new company, which would have a market value of about $185 billion based on the current value of the two companies, will have headquarters at The Hague but have a primary stock-exchange listing in London and also will trade on the New York Stock Exchange via American depositary receipts.
Shell also said third-quarter earnings more than doubled from a year ago, to $5.4 billion, helped by high oil prices and a strong performance by its refining business.
The move to merge marks the oil company's most dramatic restructuring since Royal Dutch and Shell Transport combined forces in 1907 in a complicated joint-ownership arrangement that has remained largely intact. The restructuring also is a stunning reversal for Shell , which for months resisted calls for significant corporate change after its January acknowledgment that it inflated its tally of oil and gas reserves, the estimate of the energy a company has in the ground and a widely followed investor metric.
Jeroen van der Veer, Shell 's top executive who assumes the newly created position of chief executive, said he still saw no direct link between Shell 's century-old structure and the scandal. But he said the new model -- a single chief executive, a single board and a single headquarters -- provides "more clarity, more simplicity, more efficiency and more accountability" and offers "much more-enabling decision making."
It is unclear whether the changes will put the scandal behind Shell. Shell said it may have to slash as many as 900 million barrels of oil equivalent from its reserves tally, a reduction of about 6%. This came after previous assurances it had finished cleaning up its reserves accounts. The additional "debookings" would mean Shell has reduced its tally of reserves 28% from what it said it had December 2002.
Shell also signaled it won't be making more big changes to the executive suite, following the ouster of two senior officials this year and the demotion of at least two others. An internal investigation into the overbooking largely blamed former Chairman Sir Philip Watts, and a top deputy for inadequately disclosing massive reserve overstatements. Both men have said they acted appropriately. Mr. van der Veer and Aad Jacobs, currently nonexecutive chairman of Royal Dutch Petroleum and slated to become the new company's independent chairman, also received warnings about reserve issues ahead of the January disclosure, raising questions about their roles in the scandal. Both men have said they acted appropriately.
Mr. Jacobs will be chairman of a 15-member board, comprised of 10 independent directors and five executive directors, initially drawn from Shell 's current boards. Shell 's chief financial officer and the heads of Shell 's three main businesses will report to Mr. van der Veer. The new executive suite replaces Shell 's cumbersome committee of managing directors. Mr. van der Veer succeeded Sir Philip as committee chairman in March.
Shell also said it has conducted new audits of eight billion barrels of its 14.35 billion barrels of reserves reported as of Dec. 31, and those audits suggest it may have to make further cuts. Such a move would be the company's fifth reserve downgrade since January. Shell didn't disclose specifics, throwing into doubt other key investor measures based on the reserve estimate, such as its reserve-replacement ratio, the rate at which an oil company replaces energy depleted by production with new finds. The move also could affect the company's financial statements, and Shell said details won't be available until early next year.
Investors applauded the restructuring, although the reception was stronger in Europe than the U.S. In Amsterdam, Royal Dutch rose 1.2% to €42.81 ($54.38), up 52 European cents. In London, Shell Transport rose 2.8% to 435.50 pence ($7.96), up 11.75 pence.
In New York Stock Exchange composite trading, Royal Dutch shares rose 28 cents to $54.11 and Shell Transport & Trading's American depositary receipts rose 64 cents to $47.41.
In its earnings report, Shell said third-quarter net income increased to $5.4 billion from $2.45 billion. Revenue rose 44% to $71 billion. The profit corresponded to $1.60 for each Royal Dutch share, up from 72 cents a year earlier. Per-share earnings of Shell Transport's American depositary receipts came to $1.37, up from 62 cents a year earlier.
In late August, Shell settled charges related to its reserve overstatements with the U.S. Securities and Exchange Commission and Britain's Financial Services Authority, agreeing to pay about $150 million in penalties without admitting or denying wrongdoing. Regulators continue to investigate the role of individuals in the controversy, and the U.S. Justice Department is conducting a criminal probe.
Shell disclosed on Jan. 9 that it had overstated reserves. An internal investigation blamed Sir Philip and Walter van de Vijver, former head of exploration and production, for not acting appropriately on warnings of mounting reserve problems and failing to disclose problems early enough. As previously reported by The Wall Street Journal, Mr. van der Veer and Mr. Jacobs also received some of those same warnings.
Mr. van de Veer has said that while he knew about problems, he wasn't aware of improper reserve bookings. In the interview Thursday, he declined to comment further. Mr. Jacobs declined to comment Thursday about the matter when asked during a news conference.
The merger won't be completed until next year and requires shareholder and regulatory approval. If it goes ahead, Royal Dutch shareholders will end up with 60% of the shares of the new entity and Shell Transport holders 40%, reflecting the 60-40 split in current ownership. Royal Dutch shareholders would receive two shares of the new entity for each share they currently hold. Shell Transport holders would receive 0.2874 new share for each currently held share. Shares will be issued in two classes for tax purposes but have equal voting rights.
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