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Questions over Voser’s plans for Shell

Financial Times

By Ed Crooks

Published: May 27 2009 23:33 | Last updated: May 27 2009 23:33

While Peter Voser’s plans for Royal Dutch Shell have received widespread praise for their focus on cost-cutting and operational performance, they still leave important questions unanswered.

In particular, several analysts queried the merits of merging the exploration & production and gas & power divisions into a single unit, and then immediately dividing that unit between two directors.

One of the central themes set out by Mr Voser, who takes over as chief executive on July 1, was simplification. He wants quicker decision-making and clearer chains of command, and less bureaucracy and consensus-building.

That change is exemplified by the fact that while last year Shell had five executive directors on the board, from now on it will have just three: Mr Voser; Simon Henry, his successor as chief financial officer; and Malcolm Brinded, currently head of exploration and production.

That structure mirrors the small top executive team at ExxonMobil, famous for its highly centralised management style and its industry-leading performance.

Merging the gas and power division into exploration and production to create a new upstream business fits well with that lean management structure.

However, Mr Voser has also chosen to divide the combined unit into an Americas business run by Marvin Odum, now president of Shell Oil, the US subsidiary, and the rest-of-the-world business under Mr Brinded.

Both men will have places on Shell’s executive committee, its eight-strong senior management team.

That geographic separation raises concerns among some analysts.

Neil McMahon of Sanford Bernstein says: “I don’t understand the split of the upstream business into regions.

“It means that, potentially, two senior managers will be pushing for their own projects to be developed. The risk is that capital may not get allocated to the right projects.”

The creation of a separate projects & technology unit under Matthias Bichsel, now head of technology in exploration and production, who also joins the executive committee, is another potential source of complexity.

The new department will come in to work on large oil and gas developments identified by the upstream division, and then hand projects back to upstream once construction is complete.

However, Mr McMahon and other analysts say that the creation of a global centre of excellence, also following an Exxon model, will be valuable for helping Shell to address costs and delays in the vast projects that have become increasingly important to the company.

Shell has suffered high-profile delays and budget overruns in recent years, most notoriously in its Sakhalin 2 project off the far east coast of Russia, where the final $20bn cost was double the original estimate.

The energy group’s executive-level restructuring will also see the senior management team lose its female members.

Linda Cook, head of gas and power, leaves the company at the end of next month.

Roxanne Decyk, director for corporate affairs and sustainable development, is stepping down from the executive committee to head the Washington-based government affairs department.

EDITOR’S CHOICE

In depth: Oil – Mar-27

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