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Yahoo! News: Shell shareholders prepare to vote on historic merger

Yahoo! News: Shell shareholders prepare to vote on historic merger

Sunday 26 June 2005

LONDON (AFP) – Royal Dutch/Shell shareholders will vote Tuesday on historic plans to merge the oil giant’s two holding companies following an internal crisis caused by the overestimation of proved energy reserves.

At separate annual general meetings in The Hague and London, shareholders were expected to end nearly a century of tradition by backing an overhaul of the group’s corporate governance structures via unification of Royal Dutch Petroleum and the British arm Shell Transport and Trading.

The Anglo-Dutch group, the world’s third biggest oil company by market capitalisation, announced last October plans to move to a more traditional single-board structure with one chairman and one chief executive, scrapping its current dual-board arrangements based in Britain and the Netherlands. The changes would become effective from July 20.

Royal Dutch/Shell has struggled to win back investors’ trust after admitting between January 2004 and February this year that it had overstated its proved reserves by almost 6.0 billion barrels and that senior executives were aware of problems long before they were made public.

Changes to reserves do not signify that no oil exists, rather that a company believes it can no longer recover the commodity within a certain period.

US and British regulators launched separate inquiries after Shell admitted to reserves miscalculations and fined the group 150 million dollars in total.

Three top Shell executives, including former chairman Philip Watts, were meanwhile ousted. Watts was replaced by Royal Dutch president Jeroen van der Veer, who has been chosen to head the unified group in the role of chief executive.

An oil company’s reserves are a key guide to its future profitability.

Some investors had blamed the reserves crisis on what they saw as Shell’s complicated structure. At present, Royal Dutch Petroleum holds 60 percent of the group and Shell Transport and Trading 40 percent.

Tony Shepard, an analyst at brokerage firm Charles Stanley, said he expected the new organisation to be far more efficient.

“Changing the structures is the key” to determining how Shell will increase its oil reserves in the future, he added.

The group’s present structure dates back to 1907 from the merger of Royal Dutch, formed in the Netherlands to develop oil fields in Asia, and Shell.

The latter company began life as a small family shop in London selling sea shells before growing into an import-export business shipping oil to east Asia.

Under the new structure, Royal Dutch/Shell will have a primary stock market listing in London and a secondary listing in the Netherlands, where the group will also be headquartered and pay taxes.

Following unification, the FTSE 100 index of leading shares is set to become far more sensitive to price moves in the oil market as the weight of Shell stock traded in London increases greatly.

Shell’s proved reserves stood at 10.2 billion barrels at the end of 2004. This compared with 18.6 billion barrels for British rival BP and 11.1 billion for French energy giant Total.

The group earlier this month said it had altered the way it calculated reserves to comply with US regulations. It has also set out plans to boost spending on exploration as it bids to catch up with its peers.

Shell wants to hike production to 5.0 million barrels per day in 2015 compared with 3.8 million currently.

It has said that the rate at which its production is replaced by new oil discoveries, called the “reserve replacement ratio” (RRR), stood at only 49 percent at the end of 2004. This compared with an RRR of 106 percent for BP.

The Anglo-Dutch group is hoping to achieve a 100 percent RRR by 2008.

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