BusinessWeekOnline: The Spark That Shakes Up Shell?

By Stanley Reed

After shucking Chairman Watts and his heir apparent, will the oil giant now address investors' other concerns?

The furor over Royal Dutch/Shell Group's (SC ) shocking downgrade of a big chunk of its oil and gas reserves in January has finally claimed scalps at the world's third-largest oil company. On Mar. 3, Shell's board ousted Group Chairman Philip Watts, 58, and his heir apparent, exploration and production chief Walter van de Vijver, 48. Advertisement

The shakeup shows that investor pressure is having an impact even at one of Europe's most conservative corporations. Shell has always been largely mum to the press and perceived as less than responsive to investor concerns. As recently as Feb. 5, when Watts released its annual report, he vowed he wouldn't resign. But after the reserves fiasco, which slammed Shell's stock, many shareholders wanted him out.

DRY HOLES.  Watts's failure to participate in a conference call on Jan. 9 explaining the reserves changes was said to have cost him the respect of Shell senior executives. He later apologized but was apparently unable to repair the damage. The market signaled its approval of his departure by driving up Shell's share price by 2% on the news.

Investors hope the resignations of Watts and van de Vijver, who are expected to leave immediately, herald wider changes at Shell. Once one of the most admired global outfits, Shell has been a lackluster performer of late with a disappointing exploration track record. It also missed out on the consolidation boom of the late 1990s, and its overall production of oil and gas fell by 100,000 barrels per day in 2003, to 3.9 million.

A group spokesperson said the two executives' departure was requested following a probe by the board's Group Audit Committee "into the facts and circumstances surrounding the recategorization" of some 20%, or 3.9 billion barrels, of reserves. Some analysts say difficulty in finding big new oil fields may have put pressure on Shell to overstate its reserves. A large chunk of the dubious reserves was booked during Watts's tenure as head of exploration and production from 1997 to 2001. The U.S. Securities & Exchange Commission is said to be investigating Shell's reserve reporting.

CARETAKER CHIEF?  Whether any huge changes at Shell will occur remains to be seen. Watts's successor is Jeroen van der Veer, 56, the current president of Royal Dutch Petroleum, a Netherlands-based concern that controls 60% of the group. London-based Shell Transport & Trading has the other 40%. Investors hope that van der Veer will help streamline a cumbersome share structure already under review. Shell's two-share structure, blamed for slow decision-making, also makes it almost impossible for the outfit to make cash acquisitions.

However, van der Veer, whose main experience has been in the chemicals side of the business, is unlikely to prove a revolutionary. In fact, he may be more of a caretaker. More in the way of change might be expected from Malcolm Brinded, who succeeds van der Veer as head of exploration and production. Brinded, a 50-year-old Briton, now looks like the heir apparent. He has received good reviews in earlier jobs as chief of Shell's British operations as well as head of its gas and power portfolios, which he retains. At Shell, a pair of hasty exits may herald a new start.

http://www.businessweek.com/bwdaily/dnflash/mar2004/nf2004034_0492_db039.htm