Daily Mail: Shell’s chief has no urge to merge

No Mr Slick: The quiet man of big oil, van der Veer says prices need not be so high

Thursday 4 October 2007
The City Interview by Sam Fleming

RUNNING Royal Dutch Shell’s £130bn energy empire is in some ways like being in charge of a small country. Yet chief executive Jeroen van der Veer comes across more like a provincial postmaster than a swaggering oil supremo.
 
The 59-year-old-Dutchman is slightly gawky, with hesitant English and a penchant for long-distance ice skating. Lord Browne, his former counterpart at BP was known for his lavish lifestyle and expensive artistic tastes, but van der Veer is much more low key.
 
Over a plate of fish at the Daily Mail offices, he reveals he particularly likes visiting London’s National Gallery because it doesn’t charge an admission fee.
 
Despite his £2.5m-plus annual earnings, you won’t find van der Veer splashing out on Rembrandts for the living room wall. ‘The Dutch are like the Scots’ in their parsimony, van der Veer admits. ‘I don’t make a lot of purchases.‘
 
Beneath van der Veer’s unassuming exterior lurks one of the industry’s most dogged survivors.
 
The Shell career man emerged the unlikely victor of a bloody boardroom battle in 2004 after an accounting scandal. The revelation that Shell had been overstating its oil reserves cost van der Veer’s predecessor Phil Watts his job and sparked a welter of shareholder lawsuits.
 
Since then the Anglo/Dutch firm has been cleaning up its act by sharpening up accounting practices and scrapping its cumbersome dual board and dual stock market listing.
 
‘There is no point endlessly defending what happened in the past – we have to make very clear what is the future agenda of the company,’ van der Veer says.
 
Even in the depths of the reserves scandal, he adds: ‘I felt basically this was a strong company, if you look at the balance sheet and if you look at the portfolio of technologies we have.’
 
While across the Thames rival BP has lurched from crisis to crisis over the past two years, culminating in this year’s resignation of Lord Browne, Shell’s earnings have beaten analysts’ expectations for six straight quarters.
 
Its shares have risen 16pc over the past six months, while BP’s have been flat. That’s not to say the Shell supertanker doesn’t hit choppy waters. The big question hanging over the firm is where it will it find its oil in the future.
 
State-owned giants such as Gazprom or Saudi Aramco enjoy a stranglehold on the world’s remaining oil reserves and easily accessible crude is drying up.
 
That means Shell, Exxon, BP and their rivals face a future of scrabbling around at the margins – a sorry story compared with the glory days when the ‘Seven Sisters’ dominated world oil production.
 
The days of ‘easy oil’, or readily accessible reserves in places like the North Sea, are coming to an end, van der Veer admits.
 
His hope is that Shell will prosper by establishing technological supremacy over its rivals. An engineer by training, he started at Shell in 1971 following his military service and has eagerly upgraded the status of scientists and researchers in the company ranks since taking the helm.
 
He said: ‘If you look at the future, it is all about technology because the stuff (oil) is there, but it is either very deep in the ground or in difficult regions, or the Arctic. To unlock that you need technology.’
 
Talk of research and development is of little interest to Shell’s customers, who pay through the nose at the pump.

Yet van der Veer claims Shell’s British retail operation has only ‘very marginal profitability’. To him, today’s sky-high oil prices defy logic. He says: ‘The fundamentals (in the oil market do not justify an oil price of $70 per barrel and higher. That is all to do with what I call psychology. There is a hell of a lot of psychology in the price.’
 
Van der Veer says you only need to look at the queues of ships waiting to unload cargoes in Rotterdam to realise plenty of oil is being churned out. ‘If there was a real lack of refining capacity, you would be waiting at the gasoline pump until the Shell lorry arrives.’
 
Shell’s own refining portfolio is seen as the company’s biggest strength – an impression reinforced last month when it announced a £3.5bn investment with the Saudis in the Port Arthur facility in Texas.
 
That leaves the upstream division, where oil is explored and exploited, as something of an Achilles heel.
 
In Russia last year, Shell’s stake in the massive Sakhalin 2 gas project was slashed by the Kremlin following a spat over alleged environmental violations. Van der Veer claims relationships with Moscow have since ‘improved a lot’.
 
In Nigeria, around half the firm’s capacity is shut down because of attacks and kidnappings by insurgents. Van der Veer is unable to say when production there will return to full throttle, but he doesn’t appear particularly optimistic, admitting the future there is ‘very hard to see’.
 
His biggest bet has been on so-called unconventional oil. The most prominent example of this is Canada’s oil sands, which have to be mined and heavily processed to be turned into usable product.
 
This costly and environmentally destructive process has added to Shell’s grim reputation with green campaigners. It also requires high oil prices to be profitable, which makes some analysts uneasy.
 
But van der Veer dismisses suggestions that Shell is overly reliant on elevated oil prices to sustain earnings.
 
He reckons unconventional reserves like the oil sands only need a price north of $30 a barrel to make Shell money – a far cry from today’s crude prices of $77. ‘We don’t need the oil prices of today to make our projects profitable,’ he says.
 
Even if you exclude the bulk of the firm’s oil sands, van der Veer thinks Shell’s resource base is comparable in size with BP’s.
 
Still, worries about Shell’s upstream portfolio have sustained market gossip that the firm will ultimately seek a defensive merger with another oil giant.
 
BP is frequently cited as the most obvious candidate. Talk in the City has it that Lord Browne was seeking a mega-merger in the months before he was shown the exit. But Shell’s boss is adamant his firm has an independent future and that he will spend his remaining time at the helm focusing on ‘organic growth’ rather than big acquisitions. ‘There’s no logical need to merge the company,’ he says. As to BP’s intentions, he says ‘it is for them to tell’.
 
Van der Veer is due to retire in 2009 after his tenure was extended by Shell’s board. Given this modest Dutchman’s low-key approach, it is not surprising that he is keen to avoid going out with a bang. But given the tumultuous departures of some of his fellow oil executives in recent times, that’s probably no bad thing.

Jeroen van der Veer

POST Chief executive of Royal Dutch Shell
AGE 60 this month
BORN Utrecht, the Netherlands
FAMILY Wife and three girls
HOBBIES Running, skating, golf, visiting museums
EDUCATION Mechanical engineering at Delft University, economics in Rotterdam

FUTURE PLANS? I’m not being paid a high salary to sit around talking about my retirement.

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