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Wall Street rattled by Fed as Shell fails to please City

The Scotsman: Wall Street rattled by Fed as Shell fails to please City

More questions than answers: “Most investors believe the overstatement of reserves fiasco shows Shell was seriously flawed under the current management structure, and want a single unified board instead.”

MARTIN FLANAGAN
CITY EDITOR

23 Sept 04

THE market’s 3 per cent markdown of Shell’s shares yesterday had little to do with the strategy unveiled in London by the group’s top bods.

It was almost classic textbook stuff in the oil industry at present. Fancy oil prices are making acquisitions difficult to pull off. So instead beef up the capex budget and pour money into organic growth – in Shell’s case $45 billion between 2002 and 2004.

Meanwhile, retire from lots of countries to focus on fewer, more streamlined opportunities – while flogging off vast swathes of the business it does not want anymore. In Shell’s case this runs to $10-$12bn – which is a lot of unwanted fields.

Streamline the downstream business of refining and chemicals to try and give a useful tailwind to the exploration and production cutting edge of the company. Shell did all this.

The trouble is the City’s mind was largely elsewhere.

It wanted concrete news on share buybacks – usually an oblique sign that investors do not have absolute confidence in a board to spend their money wisely.

Shell had little to say on this apart from bromides. Returning cash to shareholders was definitely not ruled out, said Jeroen van der Veer, chairman of the group’s committee of managing directors.

But it had to be squared with retaining a strong balance sheet for investment and any targeted acquisitions that may arise.

Fine as far as it goes, but few were left any wiser as to when, and how much, or even if, there will be a buyback soon.

Secondly, the market is also more concerned with other exigencies at the moment. Like the need for Shell to ditch its complex, opaque, dual-listing structure.

The company says it will come up with a preferred option in November, but was giving little clues as to the way the internal debate is going.

Most investors believe the overstatement of reserves fiasco shows Shell was seriously flawed under the current management structure, and want a single unified board instead.

Until this is resolved, it will only give limited attention to production targets, oil price assumptions and business sales. In effect, the market wanted something altogether more nuggety yesterday, but instead got a semolina of contrition for times past, conservatism in estimates, and management-speak about creating an enterprise culture.

Rightly or wrongly, Shell is concentrating on the mid-to-far horizon to mend its walls with the stock market, while the latter says it wants clarity of management structure and sweets for shareholders in the near term before it will give greater consideration to the group’s longer-term prospects.

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