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Financial Mail on Sunday: Shell Mix

Financial Mail on Sunday: Shell Mix

In an exclusive interview with Financial Mail, chief executive Jeroen van der Veer reveals how with the upcoming merger of the oil giant he will lay to rest the reserves scandal and put the £100 billion firm at the head of the industry: “In the open. Jeroen van der Veer has led a move to transparency”: “The scandal was seismic…”: “Nearly all Shell people understand that we have a reputation problem…”:

Posted Sunday 17 July 2005

(An article we missed when it was published by The Mail on Sunday on 26 June 2005)

THE INTERVIEW: By Luanda Kemeny

The Netherlands operation of Royal Dutch/ Shell is so obsessively secretive that insiders affectionately call it the Kremlin. But just as the heart of Russian government was forced into the open, the walls of secrecy at the Dutch ‘Kremlin’ are about to crash down.

The architect of the revolution is new chief executive Jeroen van der Veer, who has toiled for most of the past 34 years in the fiercely guarded, consensus-led management of Dutch Shell. He is about to launch the biggest shake-up in the 98-year history of the troubled oil giant.

This week, both Royal Dutch and Shell will ask shareholders to approve a merger that will sweep away the old 60/40 joint venture listed on the Amsterdam and London stock markets in favour of a unified £100 billion company quoted in London but with headquarters in The Hague.

This is no mere corporate finance transaction. Stuffy and bureaucratic, Shell always guarded its privacy. But last year the veil was lifted when the company confessed to a series of disastrous overstatements of its proven oil reserves.

The scandal was seismic, costing the jobs of chairman Sir Philip Watts and head of exploration Walter van de Vijver, as well as igniting investigations by global financial regulators and bringing a string of civil lawsuits.

But if Van der Veer feels in awe of the task ahead, he does not let it show. Instead, he has simply got on with it, as befits this straight-talking Dutchman of 57 whose hobbies include visiting museums.

On the surface he lacks some of the easy charm of Lord Browne, his rival at BP, but he has not balked at turning Shell upside down in little more than a year.

He attributes it all to focus. ‘I am here to do three things – put the reserves issue behind us, run the business and deal with the structure and culture.

‘I say to Shell people, I hope you can keep in mind five words -more upstream and profitable downstream.’ This simple message highlights the targets of finding more oil through exploration while making more money from its marketing and distribution.

According to Van der Veer, these five words say everything about the new regime. ‘I have tried to bring clarity and simplicity as well as speed, urgency and transparency and they amplify each other,’ he says. ‘There is no complicated language or long story.’

Management has been streamlined and a new bonus scheme introduced to encourage people in different parts of the organisation to work together in ways they have not done before.

‘Nearly all Shell people understand that we have a reputation problem, even though the issues happened in one part of the company,’ he says. ‘They like the idea that they are in it together and if we can turn the company around, everybody benefits.’

The merger of the Dutch and British companies will drive the final nail into the coffin of the old culture while securing the transparency and accountability that many shareholders demanded. ‘It was a long engagement and finally we will have the marriage,’ he says.

Van der Veer, who is married with three grown-up daughters and has just become a grandfather, has against the odds managed to convey to staff a feeling of optimism that would have been unthinkable a year ago when Shell was crippled by the reserves scandal.

But the future does not look much more comfortable. Van der Veer says the days of easy oil are over. Instead, the industry will increasingly have to chase more remote deposits while coping with new competition from government-owned oil companies which in days gone by needed partnerships with oil majors to bring their fields into production. Now they have the expertise to do it alone.

Van der Veer says that for exploration, Shell assumes it can make a profit with the cost of extraction at $25 a barrel – higher than some of its competitors. This makes projects that previously looked unprofitable now viable. Last week, he went further by announcing the development of up to ten ‘elephant projects’ worth billions of dollars. Shell has only three at present. He also aims to seize the lead in technological innovation by hiring ten chief scientists.

With other initiatives, he hopes that this move will make the company more of a ‘must have’ partner for other industry players or governments. He says: ‘In the end, we can only do a better job than national oil companies in three ways – by having better technology, which means we can produce at a lower cost or access oil that they cannot, by having more capability and track record to deal with very large projects, and by being independent.’

But with so much money coming in, surely acquisitions are on the agenda? Van der Veer says simply: ‘Yes, but we cannot pay too much. We have to create shareholder value through what we acquire and it is hard to see at this moment.’ For now, Shell is busy completing a disposal programme that has netted the company a share of £4.1 billion through the sale of two joint ventures. It is on the verge of selling its liquefied petroleum gas business for a possible £1.6 billion.

There is also the small matter of finding a chairman. Shell would like to see a new chairman arrive in time for its 2006 annual meeting, but gossip-mongers suggest that Dutch, British or even American candidates have been barred to avoid upsetting any of the company’s multinational shareholders. Van der Veer is clear in his rebuttal: ‘We will take the best chairman we can find and who is prepared to do the job. ‘Nationality is not our first concern at the moment. We are on target to meet our plan.’

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