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SHELL CEO: I don’t want to survive this pandemic with a company that is no longer capable of anything

English translation of an article published today by the FD.

“I don’t want to survive this pandemic with a company that is no longer capable of anything”

Bert van Dijk

The corona crisis is forcing Shell to restructure the company. At the same time, CEO Ben van Beurden must chart the course for a low-carbon future. What choices does he make and why can’t things go a bit faster? “We cannot organize ourselves anti-economically. We don’t have that mandate.”

Ceo Ben van Beurden leads Shell from home during the corona crisis. ‘The good thing about this period is that you can help with homework.’ Photo: David van Dam for FD

In brief

  • Shell CEO Ben van Beurden has to guide the oil and gas multinational through various storms.
  • In a long conversation with the FD, he explains why he couldn’t help but decrease the dividend.
  • He also outlines the dilemma of developing new revenue models, while the old revenue model cannot be immediately discarded.

Last week, Shell CEO Ben van Beurden reduced the value of Shell’s assets by nearly $ 20 billion last week. The massive write-off is necessary because the corona pandemic has hit the global demand for oil and gas heavily and uncertainty about the future has increased.

The multibillion-dollar amortization follows ShellRDSA’s historic decision of € 14.62-0.99% at the end of April to reduce the dividend for the first time since World War II. The world’s largest dividend payer could no longer handle that account. Two drastic decisions that have caused sleepless nights to Shell CEO Ben van Beurden.

And there is not much light at the end of the tunnel yet. That is why Shell also cuts the blade in the organization to make the company leaner, more decisive and above all ready for the future. A future in which the focus shifts from oil and gas to sun, wind, hydrogen and other emission-free forms of energy.

Remediation and reorganization, while at the same time ‘greening’ the company without putting the current profit makers too quickly with bulky waste: no simple balancing act. Van Beurden previously sketched the contours of the new Shell: less oil and more electricity in combination with gas, biofuels and later hydrogen.

In a long conversation with the FD, he looks back on his historic decision to cut the dividend by two-thirds and talks about his own position. Van Beurden looks remarkably relaxed for a CEO of one of the largest companies in the world, who has more than one headache file on his plate. The interview was originally supposed to take place at his home in Wassenaar, but the corona pandemic put a stop to that.

Where the 62-year-old Van Beurden, born in Roosendaal, normally flies all over the world, he has been leading Shell via the webcam and telephone for months now.

Does that work a bit?

“The first few weeks were really deadly and fatiguing. Normally I suffer a lot from jet lag, now I had a lot of trouble from a day of intensive phone calls. Then I’m really ready at eight in the evening and I am in bed at nine. The good thing about this period is that you have lunch with the family and can help with homework (Van Beurden has three daughters and a son from two marriages, the youngest is ten years old, ed.). Or that you can occasionally sit in the garden. But the biggest drawback is the little face-to-face contact. ”

When was the last time you flew?

‘The end of January. Our planes are now mainly used to take Shell employees and their families to a safe haven out of difficult circumstances. No longer by the board of directors. ”

Does the corona period lead to structural changes at Shell?

“There is talk of a rethinking, yes, and rediscovery. A few weeks ago I spoke to people on board Prelude, a large floating gas factory off the coast of Australia. They are far away and also far offshore. If they now need technical expertise from, for example, Germany, that is not possible. So other ways need to be figured out. For example, can we involve experts with cameras and robots? Then you often conclude that that is quite possible and in some cases even better. Because you don’t have that one expert who is there, but an entire team who can look at a problem. ”

Do you now also lead differently?

‘Yes. We now have a virtual meeting with the board of directors every Friday morning. We normally meet once a month. I also try to do a lot of virtual coffees and send video messages to the employees. I have a Gopro camera here. It is a new way of working. But it is necessary. ”

Are you still coming to the office?

“No, I work completely from home. I’ve been to the office twice so far. Once with the quarterly figures, because then you have to do live television and a press conference. That’s too complicated to do from home. ”

The events after George Floyd’s death make you realize what “privilege” is and what your responsibility is to deal with wrongdoing – no matter how minor. ” Photo: David van Dam for the FD

That sounds very rigorous

“I don’t think so. The guideline is clear. When I go to the office, my secretary comes, and before I know it I have a whole circle of people who think that if the CEO is there they should be there. I have an example function. Our occupancy rate in our offices around the world was below 5%. ”

What influence does the social debate about racism have?

“You can feel that wave of emotion going through Shell after George Floyd’s death. Our company also has problems. In the US, but also in the Netherlands. It affected me personally. If you as a white man with a white family live in a white country, you think very differently about the problem than if you are a racial minority in a country where there are problems. The events after Floyd’s death make you realize what privilege is and what your responsibility is to deal with wrongdoing – no matter how minor. ”

“I wrote a piece on our intranet, I spoke about this topic in an interview and we discussed it well on the board several times. With a day-long session, we will also be fully immersed in it soon. There is absolutely no place for situations where people no longer feel connected because they are not treated as equal. ”

Social discord, the corona pandemic, uncertainty about the future: not an ideal moment for a major internal reorganization. Yet that is what Shell is working on now. The reorganization is necessary because the effects of the corona crisis will have a large and partly permanent effect on the price of oil and gas and the demand for fuels.

Van Beurden outlines the magnitude of the crisis: “We have reduced our investment program by $ 5 billion to $ 20 billion per year. We originally wanted to grow that to $ 30 billion. So there is a huge gap between the ambition we had and what we think we can do now. A lot of costs also have to be taken out of the organization. So yes, we will have to lose weight. Can we simplify things, do it smarter? How do we give more autonomy to certain countries? ‘

BP, ExxonMobil and Chevron have all announced big layoffs. Is Shell going to do that too?

“It’s not about layoffs. I understand that there is news value in it, but for me it is about getting a better organization. As far as it gets slimmer, I’d rather think about all the third parties and consultants we need. It does not seem useful or necessary to me to add extra uncertainty at a time of great social insecurity. We already have a voluntary departure scheme. In this way we alleviate the pain as much as possible. That’s the right way in today’s society. ”

At the same time, the energy transition requires a different type of business.

“The value goes much more with the customer and much less with the development of oil and gas reserves. We need to think more about the future of our customers and less about the future of our assets. When we get out of the crisis, we will have some scratches, but I want us to be better positioned for a changing world that will come our way even faster. ”

Will there be a separate division for new energy?

“In time, perhaps, but that division is still in its infancy. We have to think about better integration with the rest of the company. ”

At the end of April, Shell announced it would reduce its dividend for the first time since World War II. In effect, you are saying that we do not earn enough from past investments to finance the future.

“The dividend cut hurts a lot, including myself, but it was the logical consequence of the corona crisis. Our dividend was not resistant to the pandemic. It has nothing to do with the energy transition. Before corona, the dividend – about $ 15 billion a year – was amply covered. But lower oil prices and the enormous uncertainty about the decline in our products, the heavily pressured refining margins that are in many cases negative and likely to be particularly bad for a long time, gas margins and chemical margins that have fallen, yes, that affects us all hard and cost us tens of billions of dollars a year. “

“We can save some costs and postpone projects, but that is not enough. Then it becomes a choice: are we going to borrow more money to pay the dividend? Or do we think it is irresponsible to pay out at the moment, because then I have to get into so much debt that the entire earnings model comes under pressure because we lose our creditworthiness. ‘

“I woke up for many nights and talked a lot about it, but we had no choice. We were the first and we were surprised. People asked, “Was it really necessary?” And, “Why not postpone by a few months?” But I don’t want to survive this pandemic with a company that is no longer capable of anything. “

Your competitors, Chevron, ExxonMobil and BP have not reduced the dividend. Why can they keep it up?

“Let’s just wait and see. The pandemic is not over yet. ”

Has there been any doubt about your own position?

“You have to do the right thing and hope you are paid in the right way. If not, you’re out of luck. But I have no regrets. I could have announced the reduction of the dividend after the shareholders’ meeting, because then my reappointment would already have been completed. But that is not correct. When they had to vote on my reappointment, the shareholders knew what kind of meat they had in the tub. We have been open, clear and straightforward. ”

Van Beurden was reappointed CEO with more than 99% of the votes at the May shareholders’ meeting, more than two weeks after the dividend reduction.

Shell is now asking shareholders to go along an uncertain route to the future, while the cork the company is still floating on, oil and gas extraction, is under pressure. Shell’s reserves are among the lowest in the industry and, according to some analysts, threaten the viability of the company. Is Shell not at risk of ending up in the so-called “Valley of Death”, where the cork has been knocked out of the company before new activities have sufficient scale?

“Ultimately, those reserves are a technical discussion. If your portfolio relies heavily on deep sea and liquefied gas, the regulations of the US stock exchange regulator mean that you can book relatively few reserves. It has nothing to do with the geological and physical aspects of reserves, but is purely an accounting consideration. ”

“But indeed, in time the relevance of the oil and gas sector in the world will decrease, and other forms of energy will replace it. So we need to develop new revenue models, but not throw out the old revenue model right away. Some say: get out of oil and gas very quickly and focus on hydrogen and electricity. Well, then it will be a fairly short and unsuccessful story. ”

Why? The idea is that you have your own responsibility to accelerate the transition.

“That’s true, I realize that too. We as a company know how things can be done differently and faster. Of course we want to do more to make aviation less CO₂-intensive, for example, but this is currently difficult. It can be done fairly quickly with high-quality biofuels, but making it is five times more expensive than an oil product. How are we going to solve that? ”

As Shell you could say: we don’t wait until we have a commercially viable model, we start investing with start-up losses and then we will make a lot of money with it later. For example, with the capture and storage of CO₂.

“Ultimately it is very difficult to make money with the capture and storage of CO₂. It is an expense. You can avoid losses. I’m fine with taking risks. It’s also great not to have the highest profit expectations on pioneer projects. But we cannot do it on a very large scale, then write off billions on it and tell our shareholders that they can be very proud that we have done our social duty. It doesn’t work like that. We cannot organize ourselves anti-economically. We don’t have that mandate. ”

It does not matter, because many people wonder how serious Shell is with its climate ambitions. Because if Shell is really concerned about climate change, you may have to accept start-up losses and set other priorities. Shell invested $2.3 billion in new energy from 2016 to the end of 2019. In total, your company invested approximately $89 billion during that period.

“I don’t think you can run faster than society and your customers. You can encourage them and show that if society chooses the right things, we will do the right thing. And we do that too. But we cannot suddenly stop using petrol and only sell electricity, even if there is no demand for it. You may be able to maintain that for a while, but you will lose a very important aspect: economic sustainability. ”

SOURCE

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