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The Sunday Times: Ultimatum for Shell chief after oil reserves bombshell

John Waples and Lucinda Kemeny

January 11, 2004


THE chairman of Shell, Sir Philip Watts, has four weeks to save his career or face being ejected by angry investors in the Anglo-Dutch oil giant.


Shell’s big shareholders were stunned on Friday after a shock announcement that the group was cutting estimates of its proven reserves at its giant gasfield in Australia and onshore Nigerian operations by 20%. 


The shares fell 7.5% after it said 3.9m barrels of oil and gas — seen as a key measure of its prospects — would have to be reclassified. The reserves had been booked between 1996 and 2002, but there is now no guarantee they can all be produced.


Further reclassifications may be made as Shell extends its review of reserves.


Investors were incensed when Watts and his finance director, Judy Boynton, refused to take part in a conference call, leaving it to their investor- relations team.


Goldman Sachs said the affair raised “significant concerns with respect to the credibility of the company’s underlying operational performance”.


One source close to the company said it was now “make or break time for Watts”. He added: “He has until February 5 when the group publishes its year-end figures to pull a rabbit out of the hat and show he is in charge, otherwise investors will be clamouring for change.”


Watts, 59 this year, may now be asked to stand down early from his position as chairman of the committee of Shell’s managing directors. During 2002 he took home £1.79m, of which £874,000 was performance- related.


Insiders said that there were two internal candidates who had been marked out as chief-executive material. The favourite is Walter van der Vijver, chief executive of exploration and production, the group’s most important division.


Van der Vijver has been leading Shell’s push into Russia. Last year he spent time travelling back and forth to meet President Vladimir Putin, whose government was threatening to remove one of Shell’s exploration licences. Instead, the company has agreed with its partners to plough $10 billion into developing the Sakhalin project and a further $1 billion into the Salym field in Siberia.


In a recent interview with The Sunday Times, he said that Russia was one of several “heartlands” where Shell was going to concentrate its firepower. Others are Nigeria, Oman and the Far East.


The other candidate who could take over from Watts is Malcolm Brinded, chief executive of Shell Gas & Power. His chances may be smaller because if he got the job he would be the third Briton in a row to head the company, which employs 115,000 and operates in 145 countries. Watts, who joined 34 years ago as a seismologist, could still salvage his reputation, but some fund managers privately concede that he has a monumental task. One option is to launch another cost-cutting initiative. Another is to renew overtures to acquire BG, the oil and gas group, but only on the right terms. BG is capitalised at £9.7 billion and it would be a big deal to pull off.


Shell is no stranger to unexpected news. But the real concern lies with the communications style of the company.,,8209-958828,00.html


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