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The Independent: Rudderless Shell still worth backing: “The company has also created a single board, after blaming its double-headed, dual-nationality structure for the disasters of recent years. Shell had been overstating its reserves of oil, and had to fess up last year, cutting the number by one-third. But only last week the company revealed the development of its Sakhalin natural gas field in Russia was 100 per cent over budget, a whopping extra cost of $10bn (£5.8bn) that had not even been hinted when Shell sold part of the field earlier this month.”: “If you wanted to be harsh, you would describe BP as a growth company and Shell as a shrinking one.”: “A rising tide lifts all boats, even the rudderless ones.”: Thursday 21 July 2005

 

The Investment Column:

Edited by Stephen Foley

Published: 21 July 2005

 

Shell, the Anglo-Dutch oil giant, has merged its Anglo half, Shell Transport & Trading, with its Dutch half, Royal Dutch. If you owned 100 Shell shares on Tuesday, you now own 29 Royal Dutch Shell shares. They fell in value a little on their stock market debut yesterday, but hang on to them.

 

Strictly speaking, you own Royal Dutch Shell 'B' shares, while Netherlands investors own 'A' shares. The difference is that 'A' shares attract a Dutch tax, but that will usually be reflected in the lower price of the 'A' shares. It is all a little confusing and UK investors might as well stick to the 'B' shares, but the important thing is that the company you own still has the same assets and prospects as it had at the start of the week.

 

The company has also created a single board, after blaming its double-headed, dual-nationality structure for the disasters of recent years. Shell had been overstating its reserves of oil, and had to fess up last year, cutting the number by one-third. But only last week the company revealed the development of its Sakhalin natural gas field in Russia was 100 per cent over budget, a whopping extra cost of $10bn (£5.8bn) that had not even been hinted when Shell sold part of the field earlier this month.

 

The track record stands in stark contrast to that at BP, its UK rival, but Shell shares have performed as well as BP's so far this year. Shell's new chief executive, Jeroen van der Veer, has persuaded the City he has a handle on the problems, but you wouldn't bet there aren't other unpleasant discoveries still to be made.

 

There is another reason for new investors to choose BP over Shell, that being the rate at which the companies are replacing the reserves they are using up. BP is replacing its assets at more than 100 per cent a year and looks set to continued to be able to do so. Shell, which replaced between 15 and 45 per cent last year depending how you measure it, hopes to get back above 100 per cent towards the end of the decade. If you wanted to be harsh, you would describe BP as a growth company and Shell as a shrinking one.

 

The main reason for existing shareholders to stick with Shell is the oil price, hovering about $60 while the City still appears to value Shell on the basis of a long-term price of half that. With global demand high, new sources of supply coming on stream only slowly, and refining capacity limited, it is likely the City will revise its forecasts upwards. A rising tide lifts all boats, even the rudderless ones.

 

http://news.independent.co.uk/business/analysis_and_features/article300586.ece

 

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