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Daily Telegraph: It really is all right now, in fact it's a gas

By Christopher Hope (Filed: 27/03/2006)
Shell's future is looking rosy, Jeroen van der Veer tells Christopher Hope, in spite of Gordon Brown's tax bill
Companies the size of Shell have the economic clout of small countries. So it is no surprise to find that Jeroen van der Veer, Shell's chief executive, gets on well with our iron Chancellor.
“I have met Gordon Brown,” he says, “He is fast. You don't need a long time for pleasantries, you can go straight to the heart of the matter, which is excellent.”
Van der Veer insists the world is not about to run out of oil and gas. ‘There are plenty of reserves’ he says, as Shell looks to expand in China, Russia and Iraq
When we meet 24 hours after the Budget in his office in the Hague, Van der Veer is pondering whether Brown is a “fossil-fuel chancellor in a carbon-conscious world” (copyright: D Cameron). “This is not fair criticism,” says the Dutchman whose company produces 3pc of the world's fossil fuel. “If you look at Gordon Brown he has a pretty 'green' mind.”
But Van der Veer has good reason to be less than generous towards Brown after he slapped a windfall tax on North Sea oil companies last November. With BP's Lord Browne of Madingley, Van der Veer is campaigning for the tax to be pegged to the oil price. “It cannot be in the interests of the long-term development of the North Sea because you have lots of mature fields,” he says.
“You have to make sure that you maximise the recovery of the UK's resources. That is why our first priority is that those taxes disappear when the oil price has gone down.”
No Shell projects in the North Sea have been cancelled – yet. “As things stand today we put the taxes into the sum because that it is the best assumption and that will impact project ranking.”
Last week's Budget contained another nasty shock for Shell. Hidden away in the back of last week's Budget is press notice BN13 entitled Controlled Foreign Companies and Residence which, tax experts believe, could land Shell with a tax bill for hundreds of millions of pounds.
Van der Veer says he has no idea about the scale of this latest assault from the Treasury. “Our tax people have studied this. Our tax residency is in the Netherlands, that is where the headquarters is. But I am not a taxation expert.” But he is realistic enough to know that few people will be sympathetic to Shell's plight after it unveiled 2005 profits of $22.9bn (£12.9bn), a record for a British-listed company.
Van der Veer's problem is that while he runs one of the world's largest oil and gas companies, with more than 100,000 employees in 140 countries, most people think of Shell as the company that runs the local petrol station.
Van der Veer admits he needs to explain away the billions more effectively. “We need to do better explanations but I still give myself low marks.
“We have said 'hang on, we don't make the profits at the retail gasoline price' or 'we make most of our profits outside the UK'. Or 'we invest more or less the same amount of profits that we make for future production'. Maybe we find more explanations. But at the end of the day, I try to say this is not profiteering.”
Why not sell the garages, where Shell makes next to nothing? Van der Veer won't have it. “It is part of our legacy. Gasoline pumps were not good business in the recent past but over the long run we like to be in the downstream, and our history is part of this.”
This modest Dutchman was parachuted into the top job in March 2004, in the middle of Shell's reserves crisis – it lost a quarter of its proven oil and gas – after the abrupt departure of his predecessor Sir Phil Watts.
The drama was the making of Van der Veer, who managed to pull of the feat of merging Shell's two operational companies (separate since 1906) into one company in little over a year.
He pulls out a piece of A4 graph paper, with a series of handwritten boxes that show how he mapped out the future of Shell. “This is the same as the handwritten slide I showed to the board,” he says. “The board refused to believe we were attacking the structure. They said 'what do you mean'?”
More graph paper, this time for another presentation to Shell's top brass last December. “I am a strong believer in absolute simplicity, if you can't say it simply then you had better think again.”
Van der Veer believes that some of the problems which engulfed Shell two years ago stemmed from a “me first” culture at Shell, dating from the dot.com days. He says. “It is the classic Kennedy thing, 'what can you do for Shell' not 'what can Shell do for you'. If you like the second, don't join Shell.”
“Something happened around the year 2000 and everyone thought 'I am so brilliant and good things will come to me'. You have to bring people back to reality. These are the rules. This is all about teamwork, and if you think you are too important, then you don't fit in.”
Right now Van der Veer is asking for a bit of patience from investors who are wondering why Shell is not finding more oil and gas than it is producing. The company has ramped up its spending ($19bn this year) to develop fields and replace the “lost” reserves.
Van der Veer hopes that in four years' time, Shell's sluggish production will start to rise. “I feel very good for 2010 and beyond. The problem is that short term you don't see it in our figures.”
Part of the frustration is that under the SEC's booking rules, Shell can only report reserves which it is certain are there. So, at Shell's $19bn Sakhalin programme in eastern Russia, it only books a “very low percentage” of the 4bn-worth of barrels which are probably under the tundra. “You can only book around the hole you drill. You do that as you go along,” he says.
Surprisingly for an oil boss, Van der Veer is not worried about the world running out of the black stuff. “There are plenty of reserves,” he says. “There is a peak of easy oil like in the North Sea, but if you look at oil sands, oil shale, very deep water, we think that the peak is very far out.”
Instead, the Dutchman loses sleep over what to do with the world's hot air. Shell's latest plan is to bury carbon dioxide under the North Sea. But he admits that this may not be the right answer.
“Every CO2 solution has another disadvantage. You can store CO2 very deep in the ocean, but will it stay there? Nobody knows. CO2 is one of the most complex themes that our industry has to face over the coming years.”
One of Van der Veer's plans for the company's future is to use its boffin reputation to beat rival oil companies to new projects. Last week he appointed Shell's first chief technological officer. And he has already removed the “cap” from Shell's research and development budget to find new energies.
“To win work from national oil companies you have to offer something that others cannot,” he says.
Elsewhere Shell will focus on gradual expansion in places like Russia and China, while keeping a watching brief on war-torn Iraq and Iran. On Iraq he says it's too dangerous for now but: “we are ready. We are a spring that is coiled”. Iran, too, has potential. “The Chinese have identified many prospects in Iran. Of course you have a short-term difficult political situation, but Iran has the second largest reserves of oil and gas, and they will last for decades.”
The frustration of Van der Veer is the length of time it takes to develop reserves. This means that his successor will reap the benefits after he retires on July 1, 2008.
“You do a lot for your successors,” he says. “I hope that one day sitting in my chair, old and grey, someone will say thank you very much.”

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