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Shell unveils $15bn recovery plan

The Guardian: Shell unveils $15bn recovery plan

“The reserves scandal forced Shell’s chairman, Philip Watts, to resign, along with Walter van de Vijver, its oil and gas chief and its chief financial officer, Judy Boynton. The company was fined by the financial services authority in the UK and the securities and exchange commission (SEC) in the US.”

Mark Tran

Posted 23 Sept 2004

The Anglo-Dutch oil giant Shell today sought to draw a line under its reserves scandal by announcing plans to spend $15bn (£8.4bn) a year to replenish reserves and develop production in its oil and gas business.

The world’s third-largest oil company also said it would sell $10-$12bn of non-core businesses over three years and would look at “focused acquisitions” to create value.

“We are focused on improving our competitive position, strong cash generation and total shareholder returns,” Jeroen van der Veer, the Shell chairman, said in the group’s strategy statement. “Replacing our reserves is a priority to support future growth.”

Shell confounded investors in January by slashing its proven oil and gas reserves by a fifth. Subsequent smaller reserves cuts further dented investor confidence and raised questions about the company’s unwieldy dual board structure. Shell Transport & Trading of London and Royal Dutch Petroleum of The Hague are run by separate boards, an arrangement dating from their 1907 merger.

The reserves scandal forced Shell’s chairman, Philip Watts, to resign, along with Walter van de Vijver, its oil and gas chief and its chief financial officer, Judy Boynton. The company was fined by the financial services authority in the UK and the securities and exchange commission (SEC) in the US.

Shell will be hoping to restore investor confidence with the measures announced today. It failed to replenish its reserves in four of the last five years, according to the SEC. Investors look for oil companies to replace 100% of their reserves each year.

Shell intends to replace 100% of its reserves on average in the next five years, a goal the company said it was reasonably confident of meeting.

The company forecast capital investment of $15bn a year, of which $1.5bn is earmarked for exploring for new reserves. Shell said it had been approached by a possible buyer for its global liquid petroleum gas distribution and marketing business.

Shell had already announced plans to sell petrol stations in Spain, oil fields in Angola and pipelines in the US. It is using the proceeds to pay for cost overruns at some of its biggest projects, such as a $10bn venture to tap gas off Russia’s Sakhalin Island, which the company is counting on to boost output later this decade, and to buy back shares.

At the moment, Shell plans $2bn of share buybacks in 2004, less than rivals BP and ExxonMobil. Shell did not change that estimate or give an explicit commitment to extend share repurchases into 2005.

“If additional cash is available, we will balance further high value capital investment opportunities with returns to shareholders,” Shell said.

Shell plans to report the outcome of a review of its corporate governance and dual structure in November. Investor calls for changes in Shell’s structure have increased since the reserve cuts. Shell began the review in March.

http://www.guardian.co.uk/business/story/0,3604,1310234,00.html

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