The Observer: Unsure of Shell – still: “Shell's presentation was marred by the admission that on top of the three announcements of reserve downgrades this year - totalling 4.47 billion barrels - there could be more to come.”: “Brinded was clearly embarrassed. The fiasco has dragged Shell's name through the mud, and led to the departure of his and van der Veer's predecessors amid allegations of cover-up and lying.” (ShellNews.net)
Sunday October 31, 2004
'Today is a great day,' said Lord Oxburgh, chairman of Shell, the UK arm of the oil giant, on Thursday. After nearly 100 years operating as a joint venture, the bi-partite Anglo-Dutch company announced plans to become one - one board, one CEO, one headquarters, one direction. Jeroen van der Veer, the Dutchman who became the company's first chief executive, professed himself possessed of a mixture of 'humility and excitement'. But the view from the board was not shared by everyone.
'It is diabolical,' said one Shell watcher, after listening to an hour of presentations and questions on Thursday. Why? The company had gone as far as could have been hoped in its corporate restructuring, replacing the twin structure, moving to the Hague and listing the company exclusively in London. Meanwhile, it announced a more than doubling in net income. Shares popped up. Some analysts upgraded. Surely this Shell watcher was being churlish?
Let's see. The problem was reserves. Again. Shell's presentation was marred by the admission that on top of the three announcements of reserve downgrades this year - totalling 4.47 billion barrels - there could be more to come. Malcolm Brinded, head of Shell's exploration and production division, said there could be a further 900 million barrel 'potential reduction'.
Brinded was clearly embarrassed. The fiasco has dragged Shell's name through the mud, and led to the departure of his and van der Veer's predecessors amid allegations of cover-up and lying.
It was hoped that the announcement of the new structure, partly blamed for the problems, would consign this annus horribilis to history. That is not likely now.
But even this may not be all. An internal audit has looked at only 55 per cent of the company's current 14.35 billion barrel total. The remainder are still under investigation. Will there be more downgrades? Maybe.
Shell says the overhaul should deliver clarity. On the key issue that has dogged it this year, there is none. The reserve reductions will not have any impact on production in the short term. But they will affect the numbers used to compare Shell with its competitors. It will also have an impact on market sentiment.
The question is, should all of this bad news overshadow the gushing profits and new structure? The charitable view is that it ought not. Van der Veer made a lot of the four virtues - clarity, simplicity, efficiency and accountability - that he believes the revamp puts in place. Shell is being quick in getting the latest bad news out, demonstrating its new transparency.
But not all observers are so charitable. Oxburgh was asked if there was a link between the structure and the reserves debacle. 'Standing here a number of months ago, I said we did not see a direct connection between the two,' he replied. 'However, looking at all of the changes we have made and the much greater clarity that we now have inside the company, what we have done is set in place procedures which will make this kind of thing that much more difficult.'
Translation: we want to have it both ways. If Shell continues to do that, it is unlikely to persuade people that it has changed from a two-headed monster into a single-minded beast of conviction. It must do that to see its shares up to £5, where they ought to be.