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London Evening Standard: Shell and Royal Dutch merge

London Evening Standard: Shell and Royal Dutch merge

Robert Lea,

28 June 2005

STRONG share-buying in Shell is likely to continue for several days and weeks because of the unprecedented shake-up at the giant oil major, and despite fears from investors that the company could be on the verge of a rash acquisitions programme.

Shareholders in Shell Transport & Trading are in Docklands today at the company’s annual meeting, which will consign the last 100 years to the history books and rubber-stamp a full-scale merger with Royal Dutch, its sister company in Holland.

The complicated restructuring is a direct result of the oil reserves scandal that rocked the company last year, and in which Shell bosses lost their jobs.

It also forced new chief executive Jeroen van der Veer to lift the layers of secrecy at the group and attempt to simplify a business previously run as a joint venture.

The new Royal Dutch Shell will be headquartered in The Hague but listed in London, while the rolling-back of the previous 60-40 joint venture is causing mayhem for institutional shareholders who are scrambling to buy Shell stock.

Many investors need to weight their holdings in major companies to match the size of those companies relative to their position in the FTSE 100.

The listing of the whole of the combined Royal Dutch Shell in London means it now accounts for about 9% of the Footsie against the 3.9% previously.

The need to buy Shell stock has helped drive a remarkable recovery in its shares, which are up almost 40% in the past 12 months, outperforming the allshare index by 12% in recent weeks and even beating the oil sector for much of 2005.

Analysts reckon, however, that tracker funds and other investors which use the FTSE 100 as their benchmark are far from up to weight in Shell stock, with some estimates reckoning that another £22bn worth could need to be acquired.

HAPPY COUPLE? The complicated restructuring is a result of the oil reserves scandal that rocked the company last year

In addition to the normal demonstrations by environmental groups, Shell’s top brass could face hostile cross-questioning from private investors at its annual general meeting today, as small shareholders fret over the strategic future of the company.

Van der Veer has been telling staff that his strategy is simple – ‘more upstream and profitable downstream’. Some have taken that as a signal that Shell will move to hoover up rival explorers.

However, there are fears that the profits to be made while the oil price is high could see the company overpaying for assets as it did, according to many analysts, in the 2002 acquisition of Enterprise Oil, its last major deal.

Crude stays above $60

PRESSURE on the world economy and equity markets from soaring crude prices showed little sign of easing today as oil futures continued to trade close to record highs at more than $60 a barrel.

With refineries working flat out to meet robust US demand for oil products, Asian demand still strong and Iran’s Presidential election result sparking fresh geopolitical concerns, US light crude futures eased 19 cents to $60.35 a barrel but held above $60 a barrel, having closed above that yesterday for the first time since trading started in 1983.

Brent futures were down 24 cents at $59.06 but are close to all-time highs as traders brace themselves for a seasonal rise in heating-oil demand in the fourth quarter.

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