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Shell’s new chief executive needs to deliver the jam tomorrow


Peter Voser has inherited a (relatively) cushy job as incoming boss at Royal Dutch Shell. 

The Anglo-Dutch oil major has come a long way since its 2004 reserves debacle, which saw over a quarter of them wiped out. It has restructured, refocused and is on course to start harvesting a big pipeline of so-called “legacy assets” slated to unlock 10bn barrels of resources in the next few years. The challenge for Voser is to manage these on a tight budget.

Shell’s production is falling – a legacy of past under-investment. Production in the third quarter was 7pc less than in the same period last year. Against that, Shell has spent the last few years putting billions of dollars into big projects such as the Sakhalin 2 in Russia or the Pearls Gas to Liquid project in Qatar. It is spending $35bn-$36bn this year alone – much more than its peers. Shell essentially promises a lot of jam tomorrow, since most of the projects won’t come on stream until 2010–12.

Shell’s traditional rival BP is a safer short-term bet. Its production growth will be faster in the short term, and the projects offer higher margins. It is also spending less to deliver that growth. This gives investors greater comfort that falling oil prices won’t endanger its dividend, and might explain why BP shares have outperformed Shell’s by 7pc in since the beginning of September.

Voser can’t do much to close the gap right away. His biggest challenge is to make sure Shell’s complex stable of projects begin on time and on budget. In that context, Shell’s board choice of the finance director, rather than someone from petroleum operations, makes sense.

The falling oil price will make Voser’s job tricky. Shell insists its more expensive projects, especially tar sands, would still be viable if the oil price dropped further.

But it might delay investments on the expectation that costs will go down – as weaker players exit the market and costs fall for raw materials such as steel. Managing procurement smartly will be the key to success. That should come naturally to a finance man.

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