DAILY MAIL (UK): One year on and Shell is struggling towards a sea change: “Twelve months after the crisis began to unfold, Shell is at a crossroads. It has begun to take steps to rehabilitate itself with investors, but the jury is still out on whether it can restore its tarnished reputation. (ShellNews.net) 7 Jan 05
JUST one year ago this weekend Shell chairman Sir Philip Watts dropped a bomb that set off an annus horribilis for the oil giant. He knew his revelation that Shell's proven reserves were 4bn barrels less than expected would be a shock.
He hardly imagined it would set off a chain of events that would cost him his job and change the Anglo-Dutch group for ever.
Twelve months after the crisis began to unfold, Shell is at a crossroads. It has begun to take steps to rehabilitate itself with investors, but the jury is still out on whether it can restore its tarnished reputation.
Its far-reaching move to become a single company is causing stresses between London and The Hague that could still erupt in public.
Shockwaves are continuing to reverberate from the reserves affair. At first, the company tried to downplay the issue, saying that it was only reclassify-ing oil and gas from proven to probable status and the reserves were all still out there.
But the market was shocked that such a supposedly conservative group could be in breach of regulators' guidelines. The shares slumped. Including the Dutch arm, £9bn was wiped off Shell's market value.
Within days, investors were calling for Watts' head. By February 5, when he unveiled record 2003 profits of $12.7bn (then £6.9bn), lawsuits from US investors were rolling in. A month later he was gone and so was exploration director Walter van de Vijver.
Jeroen van der Veer, the group's lanky, diffident-looking head of chemicals, became chief executive.
Malcolm Brinded, another long-serving Shell man, took over the controversial exploration brief. Bowing to investors, Shell named an independent chairman, retired scientist Lord Oxburgh.
This was still not enough for big City funds, which were forced by the shock to take a hard look at Shell's long-term performance. They found it wanting and stepped up the pressure for fundamental reform.
A stream of leaked documents and emails turned up the temperature, including explosive complaints from the ousted van de Vijver that he was 'sick and tired of lying' about the reserves.
It also emerged that warnings of a sort went to Shell bosses two years earlier. Watchdogs - from the US Securities and Exchange Commission to the UK's Financial Services Authority - began investigations.
The SEC fined the company a hefty $125m (£66m) and our own FSA collected £17m. A US Department of Justice probe raised the possibility of criminal charges. With its back to the wall, the board realised the game was up for Shell's bureaucratic dual structure with parallel committees in Britain and the Netherlands.
In October, van der Veer made an announcement that would have been unthinkable previously - that the group would end the two-company structure that dates back to 1907.
A single group, Royal Dutch Shell, will have its headquarters in the Netherlands but its share listing in London.
The market gave a warm welcome to Shell's boldness. Yet the announcement was accompanied by a warning, that the reserves could be downgraded yet again.
But the tide seemed to be turning at last. Van der Veer was listening to the critics and Shell's wounded pride was spurring it into far-reaching action. In a group better known for empire-building than for pruning, a series of underper-forming assets was put up for sale.
The company was also helped by the surge in the oil price. In the market, rampant demand from Asia was pushing crude to record heights, hitting $56 in the US in October. For a giant like Shell, that means a bucketful of profit. Peter Kitchens at broker Cheuvreux expects an all-time peak for 2004 of $15.9bn (£8.5bn).
The board's current disposal plans could bring in $8bn, well ahead of the three-year target of $10bn-$12bn. But it is easier to sell parts than to grow the business. The ultimate test for the new team is not to find the right balance of non-executive directors, but to find more oil and gas.
Copying rivals BP and Total, Shell is focusing its exploration on 'big cats' or fields of more than 100m barrels. Gas finds in Malaysia and Alberta, -Canada suggest it is on the right track, but it is early days.
Peter Kitchens believes that there has been a sea change at the group. 'The low point was reached some time ago. People have realised that a new psychology is setting in at Shell. Rather than saying, "We have to be global", they are asldng questions such as, "Why should we stay in Spain when we have 5pc of the retail market and no refining capacity?"
The outlook for Shell may still look cloudy, but those with long memories recall how rival BP was on the floor 12 years ago after the ousting of chief executive Bob 'Hatchet' Horton. It buckled down to a five-year recovery plan. There was much scepticism but- the shares soared when it began to hit its targets.
Optimists see Shell doing the same. Most of the 'lost' reserves should eventually be reclaimed. But Shell has a huge reorganisation on its plate and moving to the Netherlands, with its more employee-friendly labour laws, is a risk.
Whether Shell can become a lean machine like Lord Browne's BP remains to be seen. But at least the new team has made a start in putting the horrors of 2004 behind it.
Click here for ShellNews.net HOME PAGE