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Financial Times: Scrub the shell

Financial Times: Scrub the shell: “Years of sub-standard exploration and production performance have left Shell adrift of its peers in reserve replacement and reserve life.”

Published: August 12 2004 05:00 | Last updated: August 12 2004 05:00

Meeting investors’ expectations is essential to avoid share price disappointment. Comments from Jeroen Van der Veer, Royal Dutch/ Shell’s chairman, that it was examining drastic options for corporate reform have helped build expectations of structural change. Agreement in principle to unify Shell’s two boards is the least painful and simplest answer.

The move should be applauded. Lack of clear independent oversight allowed Shell’s managers to conceal the extent of its reserves problem for two years. If a new unified board is established with separate responsibility between the chief executive and a strong non-executive chairman, investors would be reassured on the transparency of decision-making.

Shell is also examining the possibility of combining its two holding companies. This more radical structural change would probably be well received – and allow Shell’s management to seize the initiative by exceeding expectations. One option is to alter the structure to reduce Royal Dutch’s 60 per cent stake to 50 per cent. Equal control with Shell Transport and Trading would level the cultural playing field and remove a Dutch veto.

But a unified board still does not address Shell’s fundamental strategic problem. Years of sub-standard exploration and production performance have left Shell adrift of its peers in reserve replacement and reserve life. Satisfying investors that it can improve its operational performance will be a tougher bet.

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