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Daily Mail: Shell clams up on reforms: “SHELL'S attempt to put the reserves scandal behind it by blitzing investors with some big spending numbers did not inspire market confidence. The company faces a huge credibility gap over its past exploration failures, so there is not much optimism…” (ShellNews.net)

 

Alex Brummer,

Posted 24 September 2004

 

SHELL'S attempt to put the reserves scandal behind it by blitzing investors with some big spending numbers did not inspire market confidence.

 

The company faces a huge credibility gap over its past exploration failures, so there is not much optimism that upping exploration and production spending to $15bn a year will necessarily produce a turnaround by 2009.

 

Investors would rather see more of the benefits of high oil prices returned by share buybacks, as at BP, than trust Shell's pledges of wonderful returns.

 

There might be more faith in Jeroen van der Veer and his remade management team if they had done more to enlighten the world on the group's reshaping. But on this they remain resolutely silent in grand old Shell style.

 

Nevertheless, Shell-watchers did spot some clues among the myriad of figures being tossed around. The company is quietly reorganising its imperial structure, which gave huge autonomy to national companies and operating units. A symbol of this is the decision to bring two huge parts of the enterprise, oil products and chemicals, under one roof.

 

The Shell language is changing. It has always been a global company, though one which consisted of a series of competing empires, rather than a whole. But now there are signs of a 'globalised' operating company emerging that makes decisions more centrally. After all, it was the autonomy of some of the exploration units that may have been a factor which led to the over-generous counting of reserves when former boss Sir Philip Watts, who presided over the scandal, was at the helm.

 

It is almost a given that Shell, like Unilever and Reed Elsevier before it, will aim for a unified board of management. There is no point in having two main boards with different objectives pulling in two directions. But sceptics might note than the unitary structure does not appear to have done Unilever, which has lost touch with key markets, that much good.

 

To go with the unitary board there will be a single operating company so that the lines of control are much clearer. This leaves open the question of whether the two Shells - Royal Dutch quoted in Holland and Shell Transport & Trading in London - should become one. It is clear that there is discord on this already.

 

Shell believes that the merger of the two could expose the company to a long and complex process, which would create value only for the investment banks and lawyers, and leave investors with a ghastly capital gains tax liability. It would rather spend the money on exploration, extraction and pipelines.

 

There is some logic to this. At this stage of the game, a more unified and functional organisational structure - that is actually capable of delivering - may be more critical than a full marriage.

 

http://www.thisismoney.com/20040923/nm82795.html


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