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The Independent: Michael Harrison’s Outlook: Shell’s revival should give Hayward hope

Published: 04 May 2007

Shell’s sparkling set of first-quarter results will have made for painful reading over at BP. But at least they demonstrate that there is life after death for accident-prone oil majors. Three years ago, Shell looked like a busted flush.

A reserves reporting scandal had wiped billions off its market value, cost the company’s three top executives their jobs and placed a huge question mark over the company’s very future. Assailed by litigious shareholders on one side and angry regulators on the other, it was by no means obvious that Shell could claw its way back.

Abandoning its innate conservatism, the company adopted the most radical option that it possibly could, scrapping a dual board structure which had lasted the best part of a century and moving to a single main listing and headquarters.

Fast-forward to the present day and the company is barely recognisable. Yesterday it produced its fifth straight set of forecast-beating results, shrugging off a lower oil price, the unseasonally warm weather and a growing security crisis in Nigeria to record a 14 per cent rise in earnings. The comparison with BP, which turned in a 17 per cent drop in first-quarter profits after missing production targets for the seventh quarter in succession, could scarcely be more uncomfortable.

Shell has now succeeded in rebuilding its reserves while BP’s reserves replacement ratio – the rate at which it is managing to refill the tank – is falling. Shell has also set out some clear long-term goals which are easy for investors to grasp and complemented them with an unflinching approach to capital discipline. The effect of this, to take one simple example, is that Shell’s upstream margins for the first quarter remained at $13 a barrel, even though the oil price was 6 per cent lower than a year earlier.

Jeroen van der Veer, the Shell chief executive, sums up the company’s strategy in one terse and workmanlike phrase: more upstream and profitable downstream. He is delivering on both. The recent purchase of the minority stake in Shell Canada which the group did not own increases its acreage of oil sands – one of the world’s most promising sources of “unconventional” hydrocarbons. Meanwhile, earnings from the downstream activities of refining, marketing and chemicals are all sharply higher this year.

Scant surprise then that van der Veer’s request to remain at the helm beyond his 60th birthday was approved without a murmur whereas John Browne’s attempt to negotiate a similar concession erupted into a full-blown boardroom row.

What can BP under Tony Hayward learn from Shell’s experience? No chief executive can legislate for the kind of oil slick that Jeff Chevalier decided to leave in his predecessor’s path. But Hayward shows no signs of wanting to emulate Lord Browne. His will be a low-key and low-profile approach – unlike the reign of the Sun King. Although only 5 foot 6 inches, Lord Browne cast a long shadow over his fellow executives, and ultimately BP paid for allowing such a cult of personality to take hold.

Hayward’s priority, as he has already stated, will be to restore BP’s reputation as a safe and reliable operator following the traumas of Texas City and Prudhoe Bay. Perhaps that should become his mantra. As Van the Man has demonstrated in spades at Shell, sometimes boring is best.

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