Royal Dutch Shell Group .com

Financial Times: Shell's kitchen


LEX COLUMN: Mar 19, 2004


Fewer reserves than thought, management passing the buck and a falling stock price. Investors must feel that Shell's old slogan has been reworked to "You can be sure of hell".


Understandably, Shell's new management is taking a fine-tooth comb to reserve categorisation. Enlisting the help of outside consultants instils some confidence. Yesterday's additional reserves downgrade, while embarrassing, has an element of kitchen-sinking about it. But, further revisions have not been ruled out, which will continue to undermine investor confidence.


Shell recognises the need to rebuild that confidence. Dedicating more staff to reserves management is a good step. Unfortunately, admitting that some of those responsible for booking reserves do not understand the Securities and Exchange Commission guidelines is not. The discount for poor management will linger.


Meanwhile, Jeroen van der Veer, Shell's new chairman, has opted for the "it wasn't me" defence. Denying any prior knowledge of incorrect reserve bookings, he blamed the exploration and production division. This may not be sufficient for him, or Judy Boynton the finance director, to keep their jobs for long. However, cutting the number of group managing directors further without ready replacements, leaving only two, would not help confidence.


A lot of bad news is priced in. But, with uncertainty ahead and short-term share buybacks all but ruled out, there is scant reason to buy the stock.

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