The Observer: Shell fears worse to come

Oliver Morgan and Heather Connon

Sunday March 21, 2004

'Scared' executives braced for more reserve downgrades | Role of chairman van der Veer under fire

Shell executives are bracing themselves for more bad news as shareholders of the beleaguered Anglo-Dutch company express a lack of confidence in its new chairman, Jeroen van der Veer.

Privately investors expect at least one further significant resignation following last week's second downward revision this year of the group's proven oil reserves.

The executives fear a review of the reserves by external consultant Ryder Scott will result in yet more downgrades. The cut of 250 million barrels for 2002 and a further 220 million planned for 2003 came when the review was only 40 per cent complete.

'They are very scared about what they'll find in the remaining 60 per cent,' said one oil industry expert.

There is deep concern about Shell's handling of the January downgrade, which is being investigated by five separate authorities in the US and Europe and has attracted attention from a host of class action law firms.

Investors feel the lack of consultation before van der Veer's appointment, announced two weeks ago after the departure of Sir Philip Watts, indicates the group's unwillingness to increase the accountability of senior executives.

Some believe van der Veer should have been made only interim chairman, and on probation. This is effectively a vote of no confidence in him.

Eric Knight, of Knight Vinke Institutional Partners, which is linked with giant US pension fund Calpers, said: 'Shareholders would have found it [van der Veer's ap pointment] more satisfactory if he had been appointed to an interim position.'

Knight contrasted Shell's appointment with the exhaustive process at Exxon to replace chairman Lee Raymond. Knight said Shell needed structural change, particularly to increase the accountability of the Royal Dutch board, which does not have to listen to shareholders' views on appointments.

Robert Talbut, of fund manager Isis, agreed. Pressure was growing for Shell to seek a non-executive chairman to sit above van der Veer. 'We want a single structure with a new independent chairman.' Talbut said.

However, at a meeting of leading shareholders with Shell non-executive directors tomorrow the investors will demand that any restructuring must take into account that the British company has just 40 per cent of the group.

'We are minority,' said one fund manager. 'Some of the things the board are being pushed to do would not necessarily be in the interest of the 40 per cent shareholders.'

Shell now has a two-tier structure, under which Shell and Royal Dutch have different boards. A separate committee of managing directors effectively runs the group.

Royal Dutch has 60 per cent of the group and Shell the rest. Combining the company under one board could require a takeover by Royal Dutch, and British investors fear that would put them at a disadvantage.

Attempts to enlist Dutch shareholders in negotiations with the group have so far had limited success.

http://observer.guardian.co.uk/business/story/0,6903,1174282,00.html