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SHELL KEEPS DIGGING A DEEPER HOLE

Europe’s biggest oil company is burning through cash at an extraordinary rate. Shell shareholders have long nursed a low level of dissatisfaction. Many were underwhelmed by the appointment of yet another chief executive from deep within the Anglo-Dutch behemoth, which is steeped in a profound love for big engineering projects and an apparently dismissive attitude to investors. Van Beurden started at the company in 1983. These are not fresh eyes. How long will investors give him before that simmering resentment boils over? Despite its issues, BP has left Shell in the shade.

THE SUNDAY TIMES: INSIDE THE CITY: DANNY FORTSON: PAGE 14 OF SECTION 3: BUSINESS: 24 NOVEMBER 2013

INVESTORS are sick of companies that spend oodles of cash on shiny new projects rather than handing it to shareholders. That is the reason behind the boardroom bloodbaths this year at the big miners. Rio Tinto BHP Billiton, Anglo American, African Barrick Gold, the list goes on. All of them parted company with chief executives after years of spending buckets of cash on mines and ill-fated takeovers that did little or nothing for investor returns.

The message, finally, came through: no more empire building.

Shell missed the memo. Europe’s biggest oil company is burning through cash at an extraordinary rate. At about S32bn (£20bn) a year, it is in the running to be the world’s biggest corporate spender.

That is partly a reflection of the ever-rising cost of developing oil fields under thousands of metres of water and rock. Yet few have as much zeal for the world’s toughest projects as Shell has.

It is no coincidence that its shares have performed abysmally. They closed on Friday at £21.05, down 1% since January. The FTSE100, meanwhile, has gained 14%.

The company has not helped itself. This summer it announced that Ben van Beurden, head of its refining arm, would replace Peter Voser as chief executive in January.

A perfect opportunity for the company to rethink its plan, hatched under Voser, to spend S130bn on new developments between 2012and 2015.

There is so far no indication, however, that van Beurden will change tack. While rivals such as BP (of which more in a second) prostrate themselves at the altar of capital discipline, Shell motors ahead.

Analysts at Macquarie, the investment bank, recently lowered their price target for the stock from £25 a share to £22. The bank said: “Shell is clearly distinguishing itself from its European peers as an investment vehicle – and we expect that will not be a good thing from the perspective of share price performance over the next 12-18months.”

Compare that to BP. The company recently pledged to get rid of S10bn worth of assets, on top of the S40bn-odd it sold to pay its bills from the Gulf of Mexico disaster.

The company remains under a cloud, and will stay there until its tortuous New Orleans damages trial ends, perhaps some time next year. Despite its issues, BP has left Shell in the shade. This year its shares have risen 15%-slightly better than the FTSE.

Shell shareholders have long nursed a low level of dissatisfaction. Many were underwhelmed by the appointment of yet another chief executive from deep within the Anglo-Dutch behemoth, which is steeped in a profound love for big engineering projects and an apparently dismissive attitude to investors. Van Beurden started at the company in 1983. These are not fresh eyes. How long will investors give him before that simmering resentment boils over?

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