Financial Times: Lex Column: Royal Dutch Shell: “Royal Dutch/Shell's dual-country structure has been blamed for sins ranging from dodgy reserve accounting through to strategic paralysis.”: “Yesterday's announcement of the creation of a conventional unitary UK structure was received warmly - and rightly so.”: “But the outlook beyond this year looks grim.” (ShellNews.net)

Published: October 29 2004

Stock markets generally worry about profit, not corporate governance. When the latter gets in the way of the former, however, change can be swift.

Royal Dutch/Shell's dual-country structure has been blamed for sins ranging from dodgy reserve accounting through to strategic paralysis.

Yesterday's announcement of the creation of a conventional unitary UK structure was received warmly - and rightly so. However, the long-term benefit of sleeker decision-making will take years to play out.

In the short term, the change should boost the share price for technical reasons. The unified company will have its primary listing in London. Its weight in the FTSE All Share index will rise from 3.2 per cent to 7.5 per cent. The restructured Royal Dutch Shell will, however, drop out of some continental European benchmarks. The net demand created as purely passive index funds shift their weights could be £4bn, according to Deutsche Bank.

But put it in the realm of fundamentals that Royal Dutch/Shell's fate will be decided, and here news was mixed. Royal Dutch Shell indicated that a further 6 per cent downgrade to reserves was probable. Production during the third quarter was flat - a good performance relative to BP's 9 per cent decline, excluding its Russian acquisition. But the outlook beyond this year looks grim. Before yesterday Royal Dutch/Shell was an ex-growth company with poor corporate governance. Now it is just ex-growth - a big step forward. But it is increased profit expectations that markets reward. Progress there remains ephemeral.