The Independent (UK): Shell shock as oil giant merges to become one company: “Although investors welcomed the long-awaited restructuring, the announcement was marred by Shell's disclosure that it may have to reclassify a further 900 million barrels of proven reserves, bringing the amount of overbooked oil to 5.4 billion barrels or almost one-third of reserves.” (ShellNews.net)

By Michael Harrison, Business Editor

29 October 2004

The oil giant Shell yesterday unveiled plans to merge its British and Dutch halves into a single company under the control of a unified board in what marks the most sweeping overhaul of the group in its 100-year history.

Although investors welcomed the long-awaited restructuring, the announcement was marred by Shell's disclosure that it may have to reclassify a further 900 million barrels of proven reserves, bringing the amount of overbooked oil to 5.4 billion barrels or almost one-third of reserves.

The merger will create a unified business with a stock market value of £105bn - making it the second-biggest company on the London market.

The overhaul, forced on Shell by investor pressure after the reserves scandal which broke in January, will see the new unified company run from the Netherlands by a Dutch chairman and a Dutch chief executive. Furthermore, a majority of its non-executives and shareholders will be drawn from the Royal Dutch arm of the group. However, the company vigorously rejected suggestions that this amounted to a Dutch takeover.

Shell's primary stock exchange listing will be in London and its oil products and chemicals divisions will continue to be run from the UK. Some 200 jobs will be lost through the restructuring out of the 9,000 Shell employs directly in Britain and the Shell Centre on London's South Bank will remain.

Jeroen van der Veer, the chairman of Shell's committee of managing directors, will become the chief executive of Royal Dutch Shell, the new merged company, while Aad Jacobs, the chairman of the Dutch supervisory board, will become the new non-executive chairman of the group.

In line with UK boardroom practice, there will be a majority of non-executive directors on the board and where Shell was once run by a committee of managing directors compromising the heads of its individual businesses, these will be replaced by four executive directors reporting direct to Mr van der Veer.

The aim is to replace Mr Jacobs in 2006 with a non-executive chairman hired from outside the company. Similarly, half the 10 non-executives - six from Royal Dutch and four from the UK arm Shell Transport and Trading - will be replaced by external candidates by 2008.

Peter Montagnon, the head of investment affairs at the Association of British Insurers, which represents Shell's big institutional shareholders, said: "This looks very positive. It appears that the company has listened carefully to what shareholders have been saying. On first reading we are greatly encouraged."

The costs of the corporate overhaul, which have been worked on for six months by four big investment banks supported by an army of lawyers, advisers and accountants are expected to be about $50m (£27m).

But Mr van der Veer predicted this would be more than repaid by the "simplicity, clarity, efficiency and accountability" it would bring to Shell. He said he would take up the position as Shell's first-ever chief executive with a "mixture of humility and excitement".

The company said it had decided to locate its headquarters in the Netherlands for tax purposes. The merger will be carried out through a scheme of arrangement whereby Royal Dutch shareholders in the Netherlands will swap their shares for shares in the new company Royal Dutch Shell which will then acquire the UK arm, Shell Transport and Trading. The merged company will become effective from May, 2005.

Separately. Shell announced a better-than-expected increase in third-quarter profits to $4.4bn - up 12 per cent - on the back of soaring oil prices.

Malcolm Brinded, Shell's executive director for exploration and production, admitted that the potential reclassification of a further 900 million barrels was disappointing. He explained it was thanks to improved techniques used to determine the quality of reserves.

http://news.independent.co.uk/business/news/story.jsp?story=577124