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Beleaguered BP could make a tempting target for Royal Dutch Shell

Two years on from the biggest shareholder revolt on pay the London market has seen and things are getting back to normal at Royal Dutch Shell.

Shell had its moment back in 2004 with its reserves scandal but from 2005 embarked on a reconstruction involving a big increase in investment. Photo: GETTY IMAGES

Damian Reece
By Damian Reece, Head of Business 6:10AM GMT 16 Mar 2011

Peter Voser, the chief executive, earned £4.8m in 2010, four times as much as his rival Bob Dudley at BP.

But then the companies’ fortunes could not have been more different over the past couple of years. BP workers were killed yet again after a fatal safety lapse and the company’s Macondo well created a fissure in the earth’s surface that spewed pollution into the Gulf of Mexico.

BP’s shares have underperformed the All Share by 60pc as a result while Shell has lagged by 22pc, although it has outperformed its oil peers by 9pc. BP has underperformed the same group by 30pc. Shell’s total market capitalisation across its two classes of share is £132bn and BP £86bn – a gap I doubt Dudley will close in his time as chief executive and it will be beyond his successor too.

Only a self inflicted disaster by Shell will change that. Shell had its moment back in 2004 with its reserves scandal but from 2005 embarked on a reconstruction involving a big increase in investment. Those projects are beginning to flow through now but Voser is keeping his foot firmly on the floor with $1bn in cost savings by the end of next year and $100bn of investment over the next three years to secure growth through to 2020.

These are ambitious plans but the company is enjoying huge cash flow benefits from strong crude prices so can afford it and such re-investment should be encouraged. Political upheaval in the Middle East and the constant threat of natural disaster, as we’ve seen in Japan, make it all the more urgent to secure energy supplies.

Shell has also ducked more of the political controversy that BP seems incapable of avoiding so has created a perception of being a less risky business than its rival. Shell, like all oil majors, looked at acquiring BP last year and as the valuation gap between the two becomes more pronounced, BP looks increasingly like a tasty feast should Voser, or one of his peers, ever wish to divert fire power from buying oil wells to buying oil companies.

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