Judgment day for new Shell boss as he faces the City

The Business: Judgment day for new Shell boss as he faces the City

“Hopes that the group would seal a gas deal in Libya by the time of the meeting appear to have been dashed. Shell’s lead negotiator in Libya last week told The Business that agreement had yet to be reached.”

By Richard Orange

19 Sept 04

THE City is increasing pressure on Royal Dutch/Shell to launch a complete overhaul of all its businesses at its strategy meeting on Wednesday – or risk a reversal in the recent recovery of its share price.

US bank Citigroup has called for the company to announce a programme to offload up to $8bn (£4.5bn, €6.6bn) of its oldest and least profitable oil production, even if this means a steeper fall in production levels.

The bank said: “Delivery of a convincing turnaround strategy would provide scope for a further re-rating of the shares; anything less would leave the shares vulnerable to profit-taking.” Analyst Jonathan Wright told The Business: “This is what the company needs to do to turn around its fortunes.”

Shell’s shares have recovered by a quarter since hitting a low of 335p in February at the height of its crisis over misstated oil reserves, after which the chairman and exploration chief departed.

Shell’s management is likely to give further details on the accelerated sell-off this year of divisions such as petrol stations, chemicals and power – which analysts estimate could fetch more than $10bn.

But JJ Traynor at Deutsche Bank suspected that the attraction of maintaining oil production at the highest possible levels at today’s oil price will hold it back from extending the streamlining into the upstream just yet.

When Malcolm Blinded took over as head of exploration and production, he outlined a series of quick return investments into the company’s mature oil fields to milk the high oil price with production increases.

The meeting is the first chance for recently appointed chairman Jeroen van der Veer’s team to impress on shareholders that they are the right people to bring the company back from a disastrous 2004. But some question how much detail management will be able to go into, given that its new group finance director Peter Voser will not start his job until next month.

Andrew Archer at Commerzbank said: “How does the the company set out a strategy with respect to buy backs, dividend policy, or investment plans? How can it be explicit about any of these things until its new finance director arrives?”

Investors’ hopes for an early update on the company’s plans to end its eccentric two-board structure, formally scheduled for November, also appear to have been dashed, with Van der Veer last week confirming reports from Shell’s major shareholders that there would be no announcements on corporate governance.

And there are questions about whether the company will be able to thrill markets with a major announcement. Hopes that the group would seal a gas deal in Libya by the time of the meeting appear to have been dashed. Shell’s lead negotiator in Libya last week told The Business that agreement had yet to be reached.

He said: “The negotiations haven’t finalised. These things take a long time. It may be that [the Libyan oil firm] NOC gives a status report or makes an intermediate announcement.”

Deutsche Bank suspected that Shell had kept back drilling results from exploration wells in Morocco, Malaysia, Nigeria and the Gulf of Mexico. An announcement of a deal to build a liquefied natural gas plant in Iran is also possible.

World Business, page 7

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