Royal Dutch Shell Group .com

Houston Chronicle: Tough day awaiting Shell chief

Reuters News Service

Jan. 31, 2004, 6:52PM


Royal Dutch/Shell Chairman Phil Watts faces the biggest public relations test of his 2 1/2 -year tenure when he meets shareholders and the media on results day Thursday.


Watts has to explain to investors why the giant Anglo-Dutch oil group decided last month to cut the estimate of its proven petroleum reserves by 20 percent, a move that wiped more than $15 billion off the value of its shares.


Watts' decision not to take part in a telephone briefing after the announcement on Jan. 9 angered some shareholders.


The chairman of the Committee of Managing Directors has since promised to be "at the forefront" of Thursday's presentation.


Watts told staff recently that resignation was not on the agenda, but nobody in the company is more closely linked to the overly optimistic bookings, which took place between 1996 and 2001. For most of that period, Watts was running the company's core exploration and production division.


The downgrade took 3.9 billion barrels of oil and gas, enough to supply world demand for 50 days, out of proven reserves. They were put into categories with less certainty of commercial exploitation.


At current production rates, this means Shell has assured reserves for 10 to 11 years instead of 13 to 14 previously.


Despite its troubles, Shell is a strong company.


It will announce close to $13 billion of net profits for 2003, one of its biggest-ever earnings hauls, and remains the world's third largest oil company by market value at $164 billion.


Analysts estimate its dividend is covered by earnings, even if oil prices, now at $30 a barrel, fall to $10.


Shell has said it expects to be able to rebook most of the reserves at a later date.


Analysts say Shell's problems with its reserves reflect a wider malaise facing the top players in the industry, where the cost of finding and developing the planet's finite reserves are rising.


Even before the reserves downgrade, Shell had for several years been the biggest disappointment in the sector on reserves replacement, and analysts say management has to take the blame.


"Shell looks like the accident prone one, the clumsy one of the pack," said analyst Peter Hitchens of broker Cheuvreux. "Watts is going to face a real grilling on Thursday."


A special detailed outline of the company's reserves position will follow the usual results presentation.


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