FT.com: Sir Philip gives performance of his life

By Carola Hoyos and Joanna Chung in London

Published: February 5 2004 21:24 | Last Updated: February 5 2004 21:24  

Sir Philip Watts, who has done little to endear himself to investors recently, gave the performance of his life on Thursday. But this could not distract from his company's disappointing annual results and his responsibility for the stark revision of proved reserves that enraged shareholders.

The unqualified apology from the chairman of Royal Dutch/Shell for not having been present last month when his subordinates made the surprise announcement generally went down well with analysts and investors.

William Claxton-Smith, of Insight Investment Management, said: "I think that starting the meeting with an apology was something that one has to admire Phil Watts for doing."

The positive reaction came even though Sir Philip refused to bow to demands to resign following Shell's admission that misjudgments going back as far as 1996 had prompted the company to slash its proved oil and natural gas reserves by 20 per cent.

Sir Philip, who has long been criticised for being brusque, defensive and unwilling to answer tough questions, yesterday appeared smooth and sincere, if scripted - and even humble at times.

"There will be a lesson in this for everyone in Shell and for the leadership of Shell," he told the Financial Times. "It is a painful process, but we are a better company for it."

Though he said that Royal Dutch/Shell's dual structure had not hampered his ability to get on with business, he added: "But if a lot of people think that, we better listen and take it on board."

He said he intended to meet shareholders controlling some 50 per cent of the company. With only 17 months before his mandatory retirement date, he may not be there to see the end of a dialogue that is expected to be a lengthy one.

Despite a full day's conference with analysts, questions remained about why Shell made optimistic judgments on fields its competitors were more cautious about.

For example, it booked the giant Gorgon gas field in Australia as proved and ready to be developed in 1997, keeping it on its books until this year, while ExxonMobil and ChevronTexaco, the US's two largest oil companies and Shell's partners on the field, never booked it.

There was still uncertainty yesterday as to why such miscalculations went undetected for eight years. The role and responsibility of Sir Philip, who was head of exploration and production at the relevant time, also remained unclarified.

But investors seem to have shifted their focus from the chairman to the company. Shell's results attracted the more negative comments of analysts.

Finlay MacDonald, fund manager at Britannic Asset Management, said: "The results themselves were obviously disappointing, the key thing being that there was little you can take comfort from."

Production growth is expected to measure less than 1 percentage point through 2010, with a significant dip in 2005.

Meanwhile, the company faces a serious challenge to extend the life of its proved reserves, which are the shortest among its peers following the revision.

Shell said it would increase exploration and production spending to $10bn (£5.5bn), with 35 to 40 per cent going to long-term strategic projects such as Canada's oil sands, the Kashagan field in Kazakhstan and Ormen Lange in Norway.

But several analysts pointed out that Shell's projections assumed higher long-term oil prices.

Sir Philip's performance may have been better than usual yesterday. But it is unlikely to improve his legacy at Shell, which is trading at deep discounts to its competitors because of misjudgements made during his watch.