BLOOMBERG: Shell to Combine Parent Companies as Reserves Worsen (Update3): “Oct. 28: Royal Dutch/Shell Group, Europe's second-largest oil company, abandoned its century-old dual boards and plans to combine its parent company, seeking to regain credibility after misleading investors on its oil and gas reserves.”: “The combined company will be named Royal Dutch Shell Plc”: “Chairman Jeroen van der Veer wants to rebuild the credibility of Shell, after the reserves scandal…”: "...announced the fifth writedown in reserves this year. Shell said another 900 million barrels of reserves may have to be removed from its 2003 accounts" (ShellNews.net)
Oct. 28 (Bloomberg) -- Royal Dutch/Shell Group, abandoning a century-old ownership structure, will combine its parent companies and announced the fifth writedown in reserves this year.
Shell said another 900 million barrels of reserves may have to be removed from its 2003 accounts. The combined company will be named Royal Dutch Shell Plc and be based in Amsterdam, dropping its London headquarters, said Chairman Jeroen van der Veer on a conference call. Shell stock in London gained as much as 4.7 percent, the biggest advance since March 2003.
Regardless of ownership, Royal Dutch, whose shares have lagged behind BP Plc since its first reserves cut in January, will need years to find and develop new reserves, said analysts including Antoine Leurent with KBC Securities in Paris. Shell in July said oil and gas output won't rise until after 2006.
``This merger will only solve the governance problem,'' Leurent said. ``Shell has another problem that is more important than that. In terms of exploration, Shell has had a very disappointing performance. The outcome of all this is that production will not start growing again until 2006.''
Van der Veer wants to rebuild the credibility of Shell, after the reserves scandal led to the departure of his predecessor, Phil Watts, and two other senior executives. The parent company is 60 percent-owned by Royal Dutch Petroleum Co. of The Hague, with the rest held by Shell Transport & Trading Co. of London.
``I'm now the group chief executive,'' Van der Veer said. ``I can now speed up the execution of strategy.''
The company will maintain a policy to increase dividends at least in line with inflation, Van der Veer said.
Shell was up 18.5 pence, or 4.4 percent, at 442.25 pence as of 9:01 a.m. in London, after earlier gaining as much as 19 pence. Royal Dutch gained 1.19 euros to 43.48 euros in Amsterdam.
``It looks like they're finally listening to shareholders, and there's optimism that the mistakes in the past won't repeated in the future,'' said Paul Morgan, a fund manager at Brown Shipley & Co., which oversees about $2.7 billion in U.K. stocks.
Shell today reported third-quarter net income rose 70 percent to $4.41 billion from $2.59 billion a year ago, based on accounting that strips out costs from holding oil inventories. Analysts expected earnings of $4.35 billion, according to a Bloomberg survey.
Banks Say `Sell'
The overstatement of reserves led to more than a dozen shareholder lawsuits and the loss of the company's top-tier credit rating. Shell settled with the U.K.'s Financial Services Authority for a record 17 million pounds ($31 million) and also agreed to a $120 million fine from the U.S. Securities and Exchange Commission in July.
Like BP, Europe's biggest oil company, Shell is benefiting from oil prices that reached a record $55.67 a barrel in New York this week.
Among the largest investment banks, only Merrill Lynch & Co. has a ``buy'' rating on Royal Dutch. Among all analysts, 27 percent rate the company a ``buy,'' with 29 percent advising to ``sell'' the stock, according to Bloomberg data. The rest advise to hold the shares.
As Exxon Mobil Corp. and BP increase stock buybacks, Shell is boosting investments to restore its oil and gas unit. The company in September said capital spending through 2006 will be about $15 billion a year, about that of Exxon Mobil. BP yesterday raised its spending target for next year to around $14 billion.
Shell also plans to sell $10 billion to $12 billion of assets in that time to raise cash and focus on more profitable businesses.