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The Times: Masters of understatement

The Times: Masters of understatement

“Today Credit Suisse First Boston was advising investors to switch to BP instead of Shell despite BP’s being 80p more costly than Shell’s”

BP was too humble today when it dismissed a 23 million barrel write-up in its reserves as “immaterial”.

By Mike Verdin

June 29, 2004

Sometimes less is more. A David can beat a Goliath. A few well-chosen words can achieve greater effect than a snooze-making oration.

Mervyn King, the Bank of England Governor, showed as much two weeks ago when a few comments at the end of a 2,000-word speech re-ignited the national debate on house prices. And separately, Stuart Rose must wish that he had never had that brief phone conversation with Philip Green last month just before buying 100,000 shares in Marks & Spencer.

Today, it was BP’s turn to show the benefit of saying less.

First, the company was able to cheer investors by revealing that its proven reserves had been under-reported by 23 million barrels of oil.

That BP then downplayed the revision as “immaterial” hinted at a calculated modesty of costume drama proportions. Ah, but BP, you are too humble. Why do you hide your $780,000,000 splendour so?

Perhaps because, through such modesty, it further highlights the contrast between its own fortunes and those of headline-grabbing Shell. Certainly, 23 million barrels is but a drop in 18.3-billion-barrel ocean of the company’s total reserves. But when contrasted with the four billion barrel write-down in Shell’s stocks, any write-up is a triumph, a showstopper, a cause celebre.

Today, Credit Suisse First Boston was advising investors to switch to BP instead of Shell, despite BP’s being 80p more costly than Shell’s. Early last year the shares stood near parity.

It was little wonder why BP shares made headway this morning despite a fall in oil prices, while Shell lost 5.5p of hard-won gains.

BP’s timing could hardly have been better, of course. This morning’s statement came the day after Shell’s annual meeting provided the media with a further opportunity to air the failings of BP’s Anglo-Dutch rival. In truth, such a coincidence was largely beyond BP’s control, with the announcement having to be made by June 30 to meet a deadline laid down by the Securities and Exchange Commission, the US regulator.

What was not chance was that the briefing was so positive, in an understated way. Oil companies can complain justifiably that the SEC criteria for measuring reserves are deficient, being based on the oil price on one day, New Year’s Eve. Oil prices topped $40 last month, yet it was only four years ago that analysts were talking of the $10 barrel of oil. Such swings reflect in huge differences in the level of stocks which companies can, economically, exploit.

However, BP has a grip on the level of its reserves which Shell apparently lacked. BP was, within hours of Shell’s announcement, able to state a faith in its stocks which this morning was justified. Proven, in fact.

Many would credit BP’s outperformance to its relatively simple corporate structure. Unlike Shell. BP’s ability to hold one annual meeting rather than the two, in London and the Hague, which its rival did yesterday.

Indeed, corporate bureaucracy is another of those areas where less is most definitely more.

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