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Something quite seismic is happening at Shell, you can be sure of that

The Independent: Michael Harrison’s Outlook: Something quite seismic is happening at Shell, you can be sure of that

Thursday 23 June 2005

How many barrels are in a Big Cat and how many Big Cats make an Elephant? There is a new language at Shell to go with the new corporate structure which shareholders are being asked to approve next week. And while much of the terminology will remain comprehensible only to oilmen, there is a very palpable sense that what we are witnessing is the emergence of a new Shell.

In the space of a year, the chief executive Jeroen van der Veer has swept away a century of conservative, in-bred tradition. Five days from now Shell will shed its split personality and its historical baggage and re-emerge as a single company with one board, one chief executive and one headquarters. No big deal, the rest of the oil industry may say. But within Shell, the ramifications are seismic.

The Kremlin that is the Shell Centre on London’s South Bank is being dismantled. The board is being shrunk to fit. The company is becoming more flexible on the inside and more accountable on the outside. Fresh blood is being injected into a business where inertia was once the order of the day and staff turnover was less than 2 per cent a year. No wonder it was called the civil service of the oil industry.

Moreover, the obsession with production targets and the over-reliance on big, established fields, which caused the demise of the previous management as Shell scrambled to replace the oil it pumped with over-inflated estimates of reserves, is giving way to a more adventurous approach. There will still be the Big Cats (discoveries containing more than 100 million barrels of oil) and Shell will triple the number of Elephants (projects involving more than $1bn of investment). But there will also be more resources to put more Pots on the fire – clever ideas that may one day gush oil – and 10 new chief scientists to champion them at senior levels within the organisation. There will also be much more reliance on “unconventional hydrocarbons” such as oil sands, where the bitumen coating is stripped off and processed into synthetic crude.

Of course, an oil price approaching $60 provides the ideal environment for Shell to take these sorts of risks. But, as Mr van der Veer points out, these days the economics of exploration depend as much on the slice of the cake host governments insist on as the price of a barrel.

Green energy gets only a walk-on role in Shell’s vision of what the next 10 years holds. It intends creating a new CO2 czar to exploit the opportunities for trading in carbon emissions. But the prohibitively expensive cost of wind and solar will limit Shell’s portfolio of renewable projects.

Mr van der Veer has christened his philosophy “enterprise first”. Of course it is a cliché but at least it is better than the company’s previous mantra of safety first. Shell is ready to embrace it with gusto and so surely will its shareholders.

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