The Guardian: Shell tries to win friends as it owns up to mistakes

The Guardian: Shell tries to win friends as it owns up to mistakes

Terry Macalister

Tuesday June 15, 2004

Shell has owned up to a range of operational shortcomings, admitting it has been slow to take up new opportunities, has been too caught up with long-term goals and has let project management slip.

The latest round of self-criticism came from chairman Jeroen van der Veer at a meeting with shareholders and was revealed by one of its brokers, Deutsche Bank, yesterday.

The Anglo-Dutch energy group is trying to win friends in the investor community ahead of a potentially stormy annual meeting scheduled for June 28.

Shell, whose shares have been hurt since it downgraded its proven reserves earlier this year, had promised to come up with a new corporate strategy by 2005 but Deutsche believes it will probably be forced to make a full presentation by the end of September.

So far three of the most senior directors – including chairman Sir Philip Watts – have lost their positions owing to the crisis which has left it facing legal action from US investors and inquiries by regulators.

Now management is keen to show it has moved on from the reserves issue and is now firmly concentrating on strategy issues as well as corporate governance.

Last Friday Deutsche organised a day of presentations where Mr Van der Veer and other directors appeared in front of shareholders.

The oil company stressed it had taken on board some of the external criticism, accepted it had missed out on some chances and had tended to look too far ahead.

It agreed it had failed to keep up its standards on project management, reinforcing anecdotal industry criticism that some schemes were in danger of falling behind schedule.

Deutsche energy analyst JJ Traynor said in a note that these concessions were “important shifts” that would be well received by investors. They are angry because they have been forced to stand by and watch as Shell shares fell to a 25% discount to ExxonMobil and 17% to rival BP.

Corporate structure is now set for a shake-up by next year’s annual meeting, while a new system of internal performance targets and bonus schemes should be in place by the end of the year.

A review of portfolio and strategy is under way and Deutsche predicts pressure to reveal its decisions will lead to a full presentation by the early autumn even though the final decisions might not be made until the 2005 annual meeting.

The broker predicts that there will be scope for the current $2bn (£1.1bn) share buyback programme to increase as the company turns away from high-priced acquisitions, while asset sales are likely to top $3bn this year.

But the company could still be given a rough ride at its meeting on June 28 with the FT reporting that at least six leading investors are lined up to ask “embarrassing” questions. One of Shell’s top five investors was quoted anonymously saying it remained worried that the oil company was still “in denial about its problems”.

The Association of British Insurers has expressed serious concerns that planned changes in corporate governance are not being discussed openly enough.

There is also likely to be awkward questions at the meeting about the company’s operations in Nigeria after an internal Shell report warned endemic violence and crime could force it to walk away from its onshore oil operations.

The report, by international consultants WAC Global Services, questioned whether Shell could operate beyond 2008 without violating its own business principles.

Nigeria has been one of the locations where the oil company has been forced to revise down its reserves.

Shell said last night it was in constant dialogue with all its shareholders but was unwilling to talk about the progress of these discussions or to answer specific complaints.

“It would not be right to comment on individual meetings but we will be giving an update at the annual meeting,” said a Shell spokesman.

http://www.guardian.co.uk/business/story/0,3604,1238863,00.html

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