Shell ready to ride the next wave
Web posted at: 1/25/2010 0:50:0
Source ::: FINANCIAL TIMES
By Ed Crooks
Peter Voser had to be talked into becoming Royal Dutch Shell chief executive. Early in 2008, when he was the companys chief financial officer, he says, I made it clear internally here and to the board that I think Im okay where I am, and I therefore would not go for the CEO job.
When the board asked him to talk about it, however, he agreed, and as he set out his ideas for Shells future, I got excited about having the space and the freedom to move as fast as I wanted.
He has used that freedom to the full. After taking over last July, Voser put in place a new organisational structure and cut 5,000 jobs including 150 senior managers, all before the year was out. It is no surprise that, when asked to compare himself with his predecessor Jeroen van der Veer, he says: I think Im more direct, and Im a faster decision taker.
The restructuring was designed to cut costs, raise efficiency and help secure access to oil and gas reserves. Vosers second task is to look after van der Veers legacy. Shell is reaching the culmination of an investment cycle, developing projects such as the $18bn Pearl plant converting gas to liquid fuels in Qatar, and the $14bn expansion of the Athabasca Oil Sands Project in Canada, which is 60 percent owned by Shell.
Over the next couple of years those projects will be coming into production, at last starting to reverse Shells seven-year decline in oil and gas output.
That prospect will start Vosers tenure with a following wind, although as he says himself: My task is to finish what he started, which is a big piece. You need to deliver the damn thing, because just saying youre going to build it is one thing, but it needs to work at the end, so thats what we are working on now.
The third task, though, is probably the most difficult. Although Shell is in a much more robust position now than when van der Veer took over in 2004, the challenge is the same: How to create growth for the coming decade. Thats the visionary part: the objective for the longer term. Where will the oil and gas companies go? Where is the energy industry going to go? So thats now my task.
Vosers background is in accountancy and oil products, rather than upstream exploration and production. Yet it is in conventional production that Voser is pinning his hopes for Shells growth after 2012.
The distinction between conventional and unconventional resources is not clear-cut. Conventional reserves have generally been defined as those where the oil and gas will flow relatively easily from a standard well, while unconventional reserves require special treatment.
But Voser argues that North American gas production from reserves that were previously uneconomic, where Shell has a strong position, should no longer be regarded as unconventional, because it is now common. In the companys list of key new opportunities, there is not another gas-to-liquids plant like Pearl, or a tar sands development like the Athabasca project.
Voser insists that the gas-to-liquids and tar sands investments launched by van der Veer will be worthwhile, but he is clear that the cheapest way to acquire oil and gas reserves is the old-fashioned one: going out and finding them. Finding costs are $2-$3 [per barrel], and then you have development costs of maybe $7-$10 … but on average its still much cheaper than buying on Wall Street [through] M&A.
Voser believes that after years of investment the company can now rely more heavily on reserves it has found for itself. He argues that there are now enough opportunities for the next wave of development to mean that Shell can prosper even without further expansion in Canada, or in Nigeria.
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