TimesOnline (UK): Shell's tragic touch: “You can be sure of Shell. The company which made 20 per cent of its reserves disappear at a stroke, which made its chairman vanish and is about to turn two organisations into one, has weaved its spell again” (ShellNews.net) 3 Feb 05
Shell, the oil giant, cannot even announce record profits without disappointing its shareholders.
By Mike Verdin, Times Online
You can be sure of Shell. The company which made 20 per cent of its reserves disappear at a stroke, which made its chairman vanish and is about to turn two organisations into one, has weaved its spell again.
Shell has unveiled record profits, arguably the largest ever reported by a UK company (even one only 40 per cent British). It has announced a share buy-back of the type which has buoyed BP and said it will distribute $10 billion this year in dividends.
Yet it has still managed to irritate its shareholders. Magic.
Attacks from Shell’s many enemies were to expected. From green activists concerned at the release of carbon dioxide and the red lobby demanding the redistribution of Shell’s £25-million-a-day profits haul.
Yet to infuriate its own? At what cost comes shareholder satisfaction?
At the cost of accurate estimates of oil reserves, certainly. One corporate governance review, two hefty fines, three boardroom demotions and 30 internal audits after the first admission of reserve misaccounting and the company has produced what it says is an accurate reflection of its oil stocks.
At 12.9 billion barrels of oil, it is poor. Indeed, Shell’s stocks are nearly one-third smaller than they had appeared at the start of last year.
Still, at least Jeroen van der Veer, the group chief executive, maintained a "high level of confidence" that no further reserve downgrades would be needed. This cost has been met.
What the company is still paying, however, is the bill to reassure shareholders that it is capable of finding fresh reserves. The current rate of production is sufficient to empty its wells in less than ten years (at the start of 2004, that figure was more than 13 years). Yet Shell managed to replace last year only between 15 and 25 per cent of the oil it extracted, including stocks sold with businesses.
It must be asked whether excess cash would be better aimed buying extra tickets in the exploration lottery – the company’s investment budget is $15 billion this year – rather than on purchasing it own shares.
Cash should also be directed at green energy projects, which are of financial as well as ethical significance. High oil prices are only fuelling demand for alternative energy sources, which a company running short of hydrocarbons might like to position itself to provide.
The one area on which not a penny’s expenditure is justified is on a windfall tax.
"Such levels of excess are, quite frankly, obscene," Tony Woodley, the general secretary of the Transport and General Workers Union, said of Shell’s £9.3 billion annual profits.
"With our pensions in crisis these profits are 9.3 billion extra reasons for a windfall tax. The Government should grasp the nettle so everyone can benefit."
Millions already are benefiting, from the $15.1 billion taxes that Shell paid last year. This besides the income and national insurance levies paid by the thousands of Shell employees and the taxes on dividends paid to shareholders.
Indeed, the UK would have stood to have reaped bigger gains were it not for the pressures from the likes of Mr Woodley to view company profit as state cash in the wrong hands.
"Dutch tax residency is beneficial for the group," Shell said in October when deciding to site its unified group headquarters in Holland.
Punishing prosperity will only drive corporates abroad, and money and jobs with them.
Now it is Mr Woodley's turn to trim hopes of fat reserves waiting to be handsomely exploited.