The Guardian (UK): City hails Shell Anglo-Dutch merger: Headquarters shifts from London to the Netherlands; Investors braced for further downgrades in oil reserves: “Malcolm Brinded, the director in charge of exploration and production admitted: "I'm disappointed to have to flag the issues of reserves." He said the information had only come to light in recent days and though the audit process was not complete Shell had thought it right to inform the market.” (ShellNews.net)
Friday October 29, 2004
Royal Dutch Shell yesterday unveiled the biggest corporate shake-up in its near 100-year history but warned it could be forced to further downgrade the size of its oil reserves - the issue that led angry investors to demand an end to the its dual ownership structure.
The two separately quoted arms of the oil company, Royal Dutch and Shell Transport & Trading, are to merge to form a single company that will have its headquarters in the Netherlands but have its primary listing in London.
Royal Dutch Shell plc, as the new entity will be called, will have one board, one chairman and one chief executive, replacing the existing structure of two boards and a committee of managing directors that has been criticised for duplication and slowing decision making.
Shareholders in Royal Dutch will have 60% of the merged company and STT shareholders the remaining 40% - mirroring their ownership of the existing group.
Jeroen van der Veer, who chairs the committee of managing directors, will be the first chief executive and fellow Dutchman Aad Jacobs will be the chairman.
"We are determined to make Shell a different company, a more performance orientated, more competitive and less complex one," Mr van der Veer said.
Shell would concentrate on "clarity, simplicity, efficiency and accountability".
Shell's review of its corporate structure and governance was triggered after it announced earlier in the year that it had overstated its reserves by around a fifth.
The revelation sent the share price tumbling, prompted investigations by regulators in Britain and the US and left Shell facing almost £84m in fines. It also led to the departure of three directors.
Yesterday Shell was forced to confess it has still not resolved the reserves issue. It said it had audited some 8bn of its reserves - out of a total of 14.35bn - under new procedures, and warned that the results "suggest that reductions to Shell's ... proved reserves are likely to be appropriate".
Some 900m barrels of reserves are under review although Shell declined to speculate on the final level of any subsequent reduction. It also declined to be drawn on the likely outcome of an audit of the balance of its reserves.
Malcolm Brinded, the director in charge of exploration and production admitted: "I'm disappointed to have to flag the issues of reserves." He said the information had only come to light in recent days and though the audit process was not complete Shell had thought it right to inform the market.
The new corporate structure was unveiled alongside third-quarter figures showing net income had more than doubled to $5.4bn, driven by the higher oil price.
Analysts at investment bank Merrill Lynch said the news of the merger had helped to offset the concern over reserves.
"We would have called the shares sharply lower this morning on the reserves news had it not been for the announcement of unification of the two holding companies into a single entity," they said in a research note.
Initial reaction from investors to the new look group was broadly positive.
"It appears the company has listened carefully to what shareholders have been saying" said Peter Montagnon, head of investment affairs at the Association of British Insurers.
"This new management structure should lead to better accountability for shareholders and should be the backdrop for more streamlined internal systems and improved performance," said Deutsche Bank oil analyst JJ Traynor.
The City cheered the merger, with STT shares climbing to 451p in heavy trading on expectations that the increased weighting of the combined group in the FTSE 100 - from less than 4% to around 8%, according to Shell - would spark heavy buying of the stock by index funds. By the close they were 435p, up 11.25p on the day.
Shell will have to suspend its share buy-back programme but has asked for a waiver to allow it to restart purchases before completion of the merger, expected in May.
Shell declined to put a cost of the merger but said it would affect around 200 jobs in Britain.
· Exxon Mobil, the world's largest publicly traded oil company, yesterday reported a sharp jump in third-quarter profit on the back of soaring oil and gas prices.
The group said net income jumped to $5.68bn from $3.65bn in the same quarter a year ago.
Excluding a $550m charge, the company reported record earnings of $6.23bn.