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Shell may present recovery plan

CNNMoney: Shell may present recovery plan

“Royal Dutch/Shell Group is expected to try to put the damaging scandal of its overstated oil reserves behind it when it gives its annual strategy presentation next week.”

Analysts expect details on governance reform, asset disposal and replacing reserves next week.

September 17, 2004:

LONDON (Reuters) – Royal Dutch/Shell Group is expected to try to put the damaging scandal of its overstated oil reserves behind it when it gives its annual strategy presentation next week.

Analysts said they hoped the presentation would give clues on asset disposals, expected changes in Shell’s governance structure and details of how the company plans to achieve its reserve replacement targets in coming years.

More clarity on those issues could support its share price, they said.

However, some in the market do not expect much news and believe the focus will be on whether senior management shows it is committed to changing what some consider Shell’s inadequate corporate governance structure.

“It’s about convincing the market that there’s genuine appetite at the senior level in the company for change,” said Mark Iannotti, oil analyst at Merrill Lynch.

Shell shocked investors in January by slashing its proven oil and gas reserves by 20 percent. The debacle led the company to oust its top management and sparked probes by U.S. and UK regulators that resulted in heavy fines.

The company has forecast it will have an average reserve replacement ratio of 100 percent over the next five years. Analysts said they would be looking for more information on key projects such as drilling in Morocco, Malaysia and Nigeria.

“They need to show some sort of roadmap as to how they are actually going to achieve a reserve replacement ratio above 100 percent with reference to specific assets,” said Angus McPhail, oil analyst at ING Financial Markets.

A well-received presentation may enable the company to draw a line under the reserves issue, analysts said.

Governance

The oil reserve fiasco led to renewed criticism of Shell’s corporate governance and its twin-board structure, criticized by investors who had long called for a simpler organization.

Shell subsequently launched a review of its corporate governance, the results of which it said would be made public in November. Thursday, group chairman Jeroen van der Veer all but ruled out making any significant statement on the matter next week.

“We are making progress but next week we will concentrate on the strategy of the group,” van der Veer said.

Nonetheless, some analysts are hoping for a few hints.

“They might give one or two case examples of how they’ve changed the organizational structure so people are more accountable for what they actually do,” McPhail said.

Next Wednesday’s presentation will also be watched for information on possible asset sales. Analysts said the company needs to get rid of a large amount of non-core and under-performing assets in its portfolio.

Shell has said it is considering a sale of its 50 percent holding in chemicals business Basell, while banking sources have told Reuters the company is mulling a sale of its 68 percent stake in power venture Intergen.

Analysts said Basell could fetch up to 4 billion euros ($4.9 billion) and bankers have said Intergen could be worth $6 billion including debt.

“Portfolio actions (divestments of Basell, Intergen) are also likely to be high on the agenda,” Fortis Bank analyst Allard de Buijzer said in a research report. “Both divestments would make excellent strategic sense.”

Shell declined to comment on the details of the presentation.

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