Shell scandal prompts industry call for new test of reserve auditors by Richard Orange a result, the committee is also setting up an ethics committee HE oil industry is to devise professional standards planning a profes- similar to those used in the legal sional qualification and accounting professions. for auditing compa- Professional petroleum if nies' oil and gas reserves evaluators would be reserves, in a move designed to taught to recognise when the steer the US Securities and information provided to them p:change Commission (SEC) was inadequate, and to see it as iway from plans to force com- their duty to require companies ~~es, to have their claims veri- to provide better data. If they led by independent consultants. failed to do so, they would risk Mpresent there is no professional losing their qualification. ftandard or methodology for The SEC said in July it was serves auditors. considering requiring compa- Confidence in the oil indus- nies to have an independent IT's claims of what it has in reserves audit, but has issued tore beneath the ground was no statement on its progress bverely dented after Royal since then. Norwegian oil firm ~lutch!Shell slashed its claimed Statoil is a rarity in having its il and gas reserve estimates by reserves annually evaluated by 3%, primarily because the geologists DeGolyer and Mac- umbers failed to meet SEC Naughton, which also appraise ridelines. Shell's revision was Yukos. Since its scandal, Shell ?llowed by similar cuts from has committed to employing ISindependents Forest Oil and consultant geologists as part of I Paso, but did not trigger the its audit. tdustry-wide epidemic feared But oil companies such as ~thetime. Exxon Mobil and Total are Representatives from the resisting the proposals, arguing merican Association of Petro- that the expense would be urn Geologists and the Soci- unnecessary given that their iy of Petroleum Reserves company experts will always aluators are drawing up the have a deeper knowledge of the ~alification under the Certifi- fields concerned than any con- ttion Programme for Petro- sultant. ~ Reserves Evaluators. Ron Harrell, chief executive Daniel Tearpock of the Amer- Goinv alone: independent veolovists needed to test reserves of geologist Ryder Scott and a in Association of Petroleum member of the team drawing eologists told TheBusiness: ''We itions of oil and gas reserves, by the SEC and the UK's Finan- up the qualification, has argued b hoping it's a way to let the with special attention paid to cial Services Authority (FSA) that there aren't enough inde- ~estment community and gov- the SEC's guidelines. stressed that many within Shell pendent geologists to carry out nment know that we are reg- Tearpocksaid: "It means com- showed imperfect knowledge of such a task. sting ourselves. It might help panies can't just employ some- the, admittedly vague, SEC def- Ratings agency Standard & avoid the need for compulsory one who's got a geology degree initions of proved reserves and Poor's last week added to the dependent reserve auditors." and leave them to learn the def- how they differed from the com- pressure on companies to intro- The qualification would initions as they go along. People pany's internal standards. duce greater standardisation in [uire auditors to be trained just don't understand the vari- They also drew attention to the a report calling for better dis- d to take professional exams ety of definitions out there. Also, way the job ofverification rested closure of reserves auditing the geological and engi- quite often, people don't know with a single, semi-retired Shell methodology, emphasising the ering expertise required and the geological techniques." geologist, who was not given need for companies to appoint the complex array of defin- Reports into the Shell scandal enough resources for the task. As qualified personnel. \ V1 Daily Mail, Wednesday, February 4, 2004 Page 83 FINANCE SPECIAL

by BRIAN And it makes shedloads of money. Three years ago its profits hit a record £6.4bn. Tomorrow's O'CONNOR figures may come close to that. Peter Hitchens at broker Cheuvreux expects the final divi- OU can be sure of Shell ... dend to rise to 9.7p. So why have its shares not done but lately it seems the only better? And why is such fury thing you can count on is directed at Sir Phil, an affable disappointment. The appar- Leicester-born physics graduate? ently rock-solid Anglo- Watts took over in mid-2001 Dutch giant, once the knowing he had a hard act to fol- biggestYoil company in the world, low in Sir Mark Moody-Stuart, a has been shaken to its core. polished performer who began the Shareholders have been calling for the painful process of levering Shell head of UK chairman Sir Philip Watts. into the modern age. Tomorrow willbe a key test as he unveils Watts followed, leading Shell to Shell's 2003 profits, hoping their huge the £3.5bn acquisition of North scale - about £6bn - willsoothe City anger Sea rival Enterprise. But he got and see him through to retirement next off to a bad start with the City. year. The latest shock rekindled Old The cries for blood have died down but grievances. some big investors are set on changing His appointment was a bold one Shell's two-headed structure. There is even by Shell standards. The top job talk that one head - Royal Dutch Petroleum alternates between an English- - will devour the other in a nil-premium bid. man and a Dutchman, and it was That might be the ultimate answer. the turn of the Dutch. But such Anger has been simmering since January customs jar with modern thinking 9,when Shell wiped 3.9bn barrels offits esti- on board behaviour. mates of 'proven reserves' - confessingit had It is a safe bet that Shell's struc- a fifthless proven oilthan it had claimed. Sir ture will be attacked before the Philip left the announcement to his investor debate is over. The UK board is dominated by non-executives, relations staff, which some saw as but there will be pressure for adding insult to injury. more City heavies and fewer Shell shares were 401p then. 700 SHELL AND BP SHARE PRICES SINCE 1990 ... retired civil servants. Today they are 365p.The 9pc drop Sir Philip is due to retire by June has wiped £8bn off the entire BP 2005.He may not go the distance. group's market value. 600 Angry investors met independent Rebels have gathered under the directors, led by scientist Lord banner of the Association of Oxburgh, this week. The board British Insurers. Normally, irate 500 seems to have closed ranks, but shareholders' first port of call is a the argument has broadened to company's chairman. In Shell's 400 how Shell should run itself. case, Watts is the chairman. The problem is not just one for So the issue has broadened to Shell alone. BP's boss Lord examining Shell's structure. Shell 300 Browne is hugely admired, while Transport, the UK company, is Watts is under the cosh. Yet, as 40pc of the group. Royal Dutch is our charts show, until recently 60pc.They are separate companies Shell's shares had .kept pace with with separate share quotes, but BP for more than a decade. the combined group is run by a The charts do not tell the full committee of managing directors. story. BP had huge problems in Reformers are thinking the ~ 1991-92,recovering with a breath- unthinkable - that the double edi- 340jijiAiSiOiNiOij U) taking series of mergers. Its mar- fice should end. Royal Dutch ket value, once much smaller, is would make a share bid for Shell now £94bn against the £89bn to Transport. It could sweeten this by which Shell has slipped. offering investors a cash element. It would be surprising if Watts sober suits in its ageing headquar- £120bn,it has 25millioncustomers Investors are impatient with Big The cost would soon be recouped unveiled anything so radical ters on London's South Bank. and 100,000staff in 140countries. Oil,switching funds to more fleet- from its massive cash flow. tomorrow. But it would be a start After the shocking events of 9/11, It has oilfields in Nigeria, the footed rivals such as Scots-based This would be revolutionary. But if he set up a committee to review Shell's response was handled by Sakhalin project in Russia and Cairn. Its shares soared after it some argue that this is needed to the structure. two committees - a signal of their petrol stations and refineries found a prize oilfield in India - on give Shell the lean, clean manage- Most things in Shell are run by unprecedented gravity. around the world. It has a grow- territory Shell relinquished. ment it needs tocompete with BP committee. Trading, investment, It is easy to make fun of Shell. ing 'gas to power' division and Allthis feeds Citysuspicions that and Exxon Mobil - and with nim- divestment and social responsibil- But it has become one of the top leading technology in freezing gas Shellneeds a shake-up. That is one ble minnows such as Cairn Energy. ity have their own roomfuls of global companies. Annual sales are for transport. thing you can be sure of, at least. Shell boss is sorry but he. won't resign ~~ ..,P.t,,'.';,';#~""""".':. By Andrew Johnson -- SIJELL chairman Sir Philip Watts yesterday apologised for the botched way he han- dled a shock 20 per cent fall in the group's oil and gas reserves. But the on giant's boss did not apologise for the debacle itself and expressed his deter- mination to stay on to sort out the mess, despite calls from shareholders for his head. Shell lost £8.9billion in stock market value when it said on January 9 that oil reserves had been overstated by 3.9bil- . lion barrels. Watts was not available then and has kept a low profile until yesterday's City briefing when he and the company offered an explanation for why the reserves were over- booked. ''January 9 is seared into my memory;" Watts told a packed results meeting. "Why was I in 2005, said he would be not here? I can come up with spending the next two or Record results fail to impress a number of perfectly logical three weeks talking to share- SHELL tried to set its woes was an "iinmaterial" explanations. holders about their concerns. aside by trumpeting a $86 million and costs had "But the fact of the matter One analyst expected Watts is, knowing what I do now, it to remain in the short term record set of earnings for been cut by $1 billion over was a mistake. I am sorry I but suggested he might go the year to December. the next two years. was not there and that's an early in the autumn. Beleaguered chairman Sir . But the company unqualified apology. I got it Watts was in charge of the Philip Watts said underlying disappointed analysts by wrong. company's exploration and profits were up 46 per cent saying production growth "No, I won't resign because production between 1997 and to $13billion (£7billion), would be flat until 2006 I'm determined to fix the situ- 2001, when the bulk of the buoyed by strong oil prices, and results in for the fourth ation and pursue the strategic overbooking took place. with good incoming quarter were down 33 per changes we have started." Shell said reserves were cashflow being used to pay cent year on year to Investors have demanded overbooked because it did not Shell reforms a complicated have a true understanding of down debt. $1.85billion. Analysts said management structure to a what was in the ground, He said organic growth the reserves cut meant the normal board with a chief despite partners on some pro- would be driven by higher company had much catching executive and chairman. jects not booking their rights capital expenditure. The· up to do and the shares fell Watts, who is due to· retire as reserves. impact of the reserves cut 7p to 358lflp. Reserves shock wipes £8bn from valueIof oil giant Shell

By MICHAEL HARRISON Business Editor

SHELL, THE world's second biggest oil and gas company, saw £Bbnwiped from its market value yesterday after it stunned the industry and the financial markets by cutting its estimate of proven reserves by a fifth. The disclosure sent shares in the Anglo-Dutch company tum- bling by 8 per cent and also hit its UK rival BP, although BP said it had no plans to follow Shell's lead. Shell said that after an in- ternal review it had decided to "re-categorise" 3.9 billion bar- rels ofproven reserves as prob- able reserves or reserves that have "scope for recovery". Late last year the US Secu- rities and Exchange Commis- sion approached Shell and several other oil companies about the booking of reserves in the Gulf of Mexico. But Shell denied that this was the trigger for its review and said that less than 10 per cent of the re- serves it had re-categorised lay in this region. The company said it had de- cided to conduct a worldwide review of its booked reserves Shell chairman Sir Philip Watts: Reputation may be hurl by 20 per cent cut in booked reserves Financial Times after a number of one-off reviews of proven reserves in reserves will be re-booked in this had been the case by say- extent to which proven 2003 would be in the range of particular fields. The re-clas- the proved category over time ing the re-categorisation exer- reserves had been over-booked, 70-90per cent. Mark Lanotti, of sification is important because as field developments mature," cise would bring its global none ofthe executives involved Merrill Lynch, cut his rating on an oil company's proven re- it added. reserve base up to a "common would be disciplined. The cal- Shell from "buy" to "neutral", serves represent its future The re-classification is, nev- standard of definition". culations, relating mainly to saying: "This will be the third value and Shell said that, on this ertheless, a blow for the credi- Of the 3.9 billion barrels that reserves booked between 1996 consecutive year that Shell's re- measure, it was now worth 10 bility of the company and the have been re-categorised, and 2002, had been carried out serve replacement will be per cent less on a discounted reputation of its chief executive about half had been booked in in "good faith" but now Shell lower than 100per cent, raising cash-flow basis. Sir Philip Watts, who will pre- Australia and Nigeria. Two- recognised it had to work to questions over the sustain- However; Shell was adamant sent Shell's annual results to the thirds are oil reserves and one- tighter specifications. ability of future growth." the cut in reserves would have City early next month. Industry third natural gas. Shell said that Analysts were also un- The market was further un- no impact on its financial results sources said the review ap- 90 per cent of the reserves nerved by the disclosure that settled by a trading update for 2003,nor would it materially peared to have been sparked by involved were in fields that had Shell is still failing to replenish from BP pointing to lower mar- change the volume of oil and the fact that different parts of yet to be developed. its oil and gas reserves at the gins in its US gas marketing and gas that the company ulti- the Shell global empire adopted Simon Henry, Shell's head of same rate as they are being refining businesses in the mately expected to recover. "It different standards when book- investor relations, said that, depleted. The company said its fourth quarter is anticipated that most ofthese ing reserves. Shell itself hinted notwithstanding the huge reserve replacement ratio for Outlook, page 2.2 Shell chairman issues an unreserved apology I

By CHRISTOPHER HOPE BUSINESS CORRESPONDENT

SIR Philip Watts yesterday issued "an unqualified apology" for not personally making Shell's shock announcement that it was cutting its proven reserves by 20pc and admitted e had considered resigning over the matter. The chairman of Shell's com- mittee of managing directors also revealed the company had exaggerated its proven reserves ,It was a for at least 10 years and announced two inquiries into mistake not the way it accounts for them. Sir Philip said he would be to be there. meeting Shell's investors over the next four weeks to "hear at I regret that first hand" their concerns, which have included demands andIam for changes to Shell's complex corporate structure. sorry that I The surprise news on January 9 that Shell had over- was not there. stated its proven oil and gas reserves by 3.9billion barrels of That is an r oil equivalent (boe) sent the shares tumbling by 8pc. I' unqualified Sir Philip and Judy Boyton, the finance director, were apology. ( heavily criticised for not facing '! analysts and journalists on the Igot it day. Speaking at Shell's 2003 results presentation yesterday, a wrong. That chastened Sir Philip said the day was "seared into his memory". is the reality He said: "It wasa mistake not to be there. I regret that and I am that I face' sorry that I was not there. That is an unqualified apology. I got it wrong. That is the reality that I Shell chairman face." Shell had been been wrongly Sir Philip Watts classifying some of its reserves I, yesterday 'since before 1994. About one third carne from Nigeria, with the rest from Australia, the Mid- dle East and Norway among others. Sir Philip ran Shell's operations in Nigeria from 1991 to 1994. He was head of explora- came to my own personal deci- 85pc of the reserves likely to be mittee of managing directors. tion and production from 1997 sion that I should not do that. reclassified as proven over the He said: "We need to think hard to 2001, when he became This thing has happened on my next 10 years. It should replace about the group's structure." chairman. watch. I am very determined to more than 100pc of its reserves Shell posted fourth quarter He said the recategorisation see it through this difficult for the next five years. Produc- pre-tax profits of $3.94billion, as proven of 600m boe from patch." tion will be flat for 2004 and down 7pc because of a $984m Australia's Gorgon gas field in No Shell employee has quit 2005, and growing in 2006. Sir exceptional .hit, -on turnover 1997 was "an embarrassment". ove~~~affair. ~r ~ili~E. not yhilip ~said Shell's nOI_1-execu- l!head l3p.c.toj68.7billion. ~ _ --·--Tlie .companY-rlever'rulITiitted criticiseany employees, .saymg: tives would be canvassing sup- _For the year to the end of the reserves were proven until "Judgments made then would port among investors for change December, pre-tax profits were last month. probably not be made today." to its structure. The company up 35pc to $23.2billion on turn- Sir Philip said that he had con- Shell said that the impact on has boards in Britain and the over of $269.1 billion. Shell's sidered resigning. He said: "I earnings would be $86m, with Netherlands, as well as a com- shares closed down 7 at 358.5p. Edited by STEPHEN KAHN City" Business e-mail: stephen.kahneexpress.co.ul

(

D ot d; pi c st ei

in ai th of sl th V( w, fr,

cr th ai VE

di c( RACING TO COURT: A class-actlon suit against Shell, sponsor of the Ferrari Formula One team, has started In the US in sl 01 di th st Shell's. Watts·, , sued D cs I in oil reserves row ( L OIL giant Shell and boss By Andrew Johnson December 3, 1999, and ~ Sir Philip Watts came under January 9, ~OO4 - the date c( further shareholder fire reserves dropped from the overstatement was dis- e~ yesterday when a class 13.4 years to 10.6 years as a closed - to come forward. It di action lawsuit was filed alleg- result of the overstatement said the disclosure of the w ing the company deliberately and the shares closed down reserves overstatement had overstated its oil and gas 2114pat 359lhpyesterday. "damaged purchasers of h. reserves. Milberg Weiss claims the Shell Transport securites m The suit - filed in a US overstatement was not a and rocked the investment in court by law firm Milberg result of "error or accident" community". Weiss Bershad Hynes & but that reserves were Shell attempted to calm Lerach - alleges the com- "knowingly overstated" to investor fears over its pany had "deliberately vio- preserve the company's position when it announced lated accounting rules and credit rating and to shore up the cut to reserves, arguing guidelines". its competitive position. the oil or gas was still in WAns: Investors have been calling for his head Milberg Weiss launched The suit also names Shell the ground or under the sea w' the action after Shell said chairman Watts as a poten- . ,but could no longer be likely to force Watts to stand £~ proved reserves of 3.9billion tial defendant, along with counted as "proved" under down before he reaches the D barrels, or 20 per cent of the other senior company direc- US rules. compulsory retirement age al total, had been "recate- tors and executives. The statement announcing of 60 in June next year. PI gorised" after a review. ~berg Weiss is attempt- the reserves cut led to fur- However, the company is st Shell shares plummeted ing to find shareholders to ther calls for Watts's head considering changes to the I'(J 30p to 371114on the day the support the action and asked But Shell non-executive group's complicated board g( news broke. The life of Shell's for share buyers _between directors are not thought structure. Ie OIL giant SHELL and its admission less than ays: "The complaint three weeks ago that its oil alleges that defendants deliber- chairman Sir Philip and gas reserves were a fifth ately violated accounting rules Watts are facing a dam- smaller than thought. which resulted in a shocking That sparked a plunge in and unprecedented overstate- aging lawsuit in the US. Shell's share price which ment of oil and gas reserves. A group of shareholders wiped £2.9billion from the "The eventual disclosure have accused Shell and its company's stock market value. damaged purchasers of Royal sister company, ROYAL The lawsuit piles more pres- Dutch and Shell Transport sure on Sir Philip. who has securities and rocked the DUTCH, of deliberately been slammed by some share- investment community," breaking accounting laws. holders for not speaking pub- Sir Philip did write to staff Also named in the action licly on or after the admission. last week saying: "I know are chief financial officer Judy The claim for damages - there is significant concern Boynton and LLOYDS TSB which could run into hundreds and, in some quarter, out- chairman Maarten van der of millions of pounds - was rage ... but we did achieve the Bergh, a former Shell manag- filed in New Jersey late on Fri- objective of giving the facts ing director. day by law firm Milberg Weiss unclouded by personality." Oil slick .. boss Sir Philip The legal move follows Bershad Hvnes & Lerach. The The shares fell 2.25p to 359.5. II

The oil giant has been heavily fined for overstating its reserves, but now looms the prospect of law suits against the individuals involved. Sylvia Pfeifer reports

Training is Shell pumps in £25bn the key to , . avoiding new fiasco SHELL has so far trained to restore reputation more than 2,000 staff to ensure the way they book future oil reserves will meet OIL GIANT Shell is to step up By Andrew Johnson regulations laid down by the investment by 20 per cent to r US watchdog, the Securities $45billion (£25billion) for the $20 to $25,which he felt accept- and Exchange Commission. next three years in a major able given historically high Exploration and produc- shake-up designed to restore oil prices. tion chief Malcolm Brindred the group's battered reputation. Significant growth in output is said the group also planned More than $34billion has been not expected to kick until 2009, \ to have more than 3,000 earmarked for the group's with next year seen as a , employees versed in SEC exploration and production arm, "low point". i compliance tactics by the the division at the centre of the The reserves fiasco lead to a end of this month. scandal which S?W nearly 4.5bil- board shake-up, with van der It was a failure to comply lion barrels wiped offthe Anglo- Veer's predecessor, Sir Philip with SEC guidelines, partly Dutch oil giant's reserves. Watts, and exploration boss the result of slack internal The focus is on bringing oil Walter van de Vijver losing their and external controls, that and gas fields on line and turn- jobs. "I wish we had not had to led to the shock reserves ing potential into production. go through the past six months downgrade earlier this year. However, $4.5billion will be - crisis is not the best way to The firm has also hired a spent searching for oil resour- operate," van der Veer said. series of external reserves ces, an area in which Shell has "However, we are -where we. auditors to ensure the deb- under-invested until recently. are and we will use this as an acle will not happen again. Executive chairman Jeroen opportunity to show what we However, Shell had no news van der Veer said yesterday the can do." yesterday on the biggest group hoped to finance the pro- Much depends on-the new changes of all - in the com- gramme with $12billion from production chief Malcolm Brin- pany's complex, three-board disposals and extra cash gener- dred. He said the firm had cut structure. Shareholders want ated by the present high the number of countries where a single board with clear lines oil price. it has a presence from 40 to 25. of accountability. Shell will also merge its oil Short-term production will be ,execu- products and chemicals arms to driven by oil fields in West tive chairman, said a "unified help make cost savings. Africa, the Middle East and structure" was one of the Investors were under- North Sea, later shifting to Sak- options the company was con- whelmed. The shares fell 14lf4p halin, off the Russian East sidering, adding: "There are to 418p as analysts complained coast, central Asia and the Asia- different ways of unification." about a lack of information on Pacific region. The group is expected to share buybacks and fretted He said Shell had possible reveal its plans in November. over the increased investment, reserves in oil and gas of up to The Financial Services which could mean less money 60billion barrels but admitted Authority said it was "confi- for shareholders. some of the short-term replace- dent" it had followed the Van der Veer said the com- ment of actual reserves would right guidelines in fining pany's break-even price for a come from rebooking reserves Shell £17million for market barrel of oil had increased from wiped off by the scandal. OPPORTUNITY: Van der Veer hopes to turn crisis Into a coup abuse earlier this year. Investors howl for Shell's blood

By John Phaceas

OIL giant is again expected to come under immense pressure this week from investors around the world after Friday's shock. revelation it had slashed its oil reserve estimates by 20 per cent. The Independent on Sunday I 24 October 2004

BUSINESSI7 Analysis Tarnished Shell seeks to be born again Tim Webb on the oil giant's attempts to put scandal behind it and give itself a facelift

hell is expected to outdo its rival, BP, when it announces higher third- quarter earnings this week. In fact, it has already earned more than BP this year, which isn't bad for such a "trou- bled" company. It underlines the fact that the Anglo-Dutch company has con- tinued to perform financially despite spending most of the year mired in controversy. This is the same Shell which in the past six months has seen its chairman, exploration chief and finance director leave after a fifth of its proven oil and gas reserves were found to be wrongly booked. And it is the same company whose new chair- man, [eroen van der Veer, vowed last month at its annual strate- Venus rising: by selling Andrew Archer, an analyst at allow more exploration projects gy meeting: "Much more needs up to $12bn in assets Commerzbank, argues that it is to go ahead. Ron Mobed, the to be done. We are driving Shell . and ploughing the more a case of tidying up rather president of consultancy IHS to be a different company." money into major than a radical departure from the Energy, says that since oil com- Shell plans to raise between buyer interest - first-round So why is the oil giant - motto, exploration projects, the past. "The worry is that it's not panies raised their assumptions $10bn (£5.5bn) and $12bn bids were tabled a fortnight "You can be sure of Shell" - Anglo·Dutch 011company • going to be a very 'new Shell'. this year, he has already seen an from disposals in the next two ago - a sale early next year changing and what will the hopes to regain its It's much more a case of trying increase in requests for data on years. It has already identified appears the most likelyoption. "new Shell" look like? faded charm. But it still to catch up with its peers. They new areas, suggesting that it is $8bn of non-core or One of the biggest problems has a lot of catching are trimming and tidying where already having an effect. underperforming assets to INTERGEN facing Shell is how to replace the up to do they can." Mr Hitchens says that the bar sell, and wants to raise What is it? A global power- oil it is pumping. After it down- STEVE CAPLIN Mr van der Veer said that has been left deliberately low by another $5bn by selling off generating business, owning graded four billion barrels of reserve replacement would new executives to manage smaller and mature oil and gas or building power stations "proven" oil and gas reserves to most of it on exploration and average at least 100 per cent until expectations and avoid more fields. More businesses could which generate 16,000 MW. "probable", the company was left production. This is around four 2008, hardly an ambitious goal missed targets. He points to the be sold as new finance . Another joint venture: Shell with one of-the lowest reserve times the amount earmarked five but if met, much improved on relatively high $1.20 per barrel director only owns 68 per cent, with US replacement ratios among its years ago and the same spend- recent performance. Produc- finding cost as an example of arrived this month. conglomerate Bechtel peers. Since 1999, excluding ing level as US oil major Exxon tion, he said, would be little targets that are ''verging on the owning the rest. reserves from companies it Mobil, which is a third bigger more than flat, giving a range of ridiculous". "Shell directors BASELL How much is it worth? bought, it has averaged less than Shell. between 3.8 million and four have spent the last year reading What is it? A chemicals Shell's stake could fetchSzbn, than 100 per cent replacement; million barrels of oil a day by the newspapers about how bad company which Shell owns last year it was 80 per cent. This 2009, after falling next year. they are," he says. "The last thing with German company BASF. LPG DIVISION means that it is selling oil faster With production this year at they want to read is that they How much is it worth? What is it? LPGstands for than it can find it. In effect, the ~Shelldirectors a maximum of 3.8 million bar- have failed again." Shell's 50 per cent stake is liquified petroleum gas, a company is shrinking. By com- have spent the last rels a day - and the company's Mr van der Veer's caution is worth around $3bn. clean-burning gas, usually parison, BP's ratio has been com- recent appalling track record for understandable. Oil exploration Shell, which said it was bottled and used in cooking fortably over 100 per cent over year reading the meeting targets - some analysts and production require billions reviewing "strategic options" and heating systems. Shell the last five years. newspapers about are sceptical even that current of pounds of investment and it for the venture with BASFover produces and distributes LPG. Peter Hitchens, an analyst t levels can be maintained. Not takes up to a decade for some the summer, could also float How much is it worth? from the French stockbroker how bad they are alone in seeing production fields to come on-stream. Ana- Basell. But following strong Around $4.4bn. Cheuvreux, says that the prob- growth falter, Shell will give lyst IT Traynor from Deutsche lems date back to the late 1990s more specific production targets Bank says Shell has had some when Shell cut exploration Mr van der Veer also with its full-year results early exploration successes this year. spending. "As a result, it could promised the money would be next year. Tellingly, however, the But there is no quick fix to its not find enough reserves and spent differently. Rather than official presentation did not predicament oflagging reserve could not meet its production drilling smaller wells in more mention the word "target". replacement and minimal pro- targets," he says. areas, exploration would con- Shell has also given itself duction growth. Rather than massaging the fig- centrate on "big cat" discover- more flexibility by raising its oil Mr Archer adds: "The prob- ures, as his predecessor had, Mr ies, he said Infuture, it will focus price assumptions - the price of lem Shell faces is that, despite van der Veer promised "actions on West Africa, and in particu- oil it assumes when it decides big projects coming on-stream and urgency" to solve the re- lar Nigeria, Russia and the Mid- whether a project would be eco- towards the end of the decade, serves problem. Disposals would dle East, as well as on deep well nomic - to $25 per barrel on the there is nothing which will fill raise up to $12bn (£6.6bn) by drilling and liquified natural gas. back of record crude prices the near-term production gap watch from abox. com 2006 and capital spending It is selling out of country now above $50. This is higher over the next four years." One An Independent Corporate Hospitality Company would be boosted to $l5bn per positions where the deposits are than companies such as BP and thing you can be sure of: this year over the next two years smaller - Thailand, Angola, ENI and Total, which have also supertanker will take a long time from an original budget of$12bn, Sweden and Spain. raised assumptions, and will to turn around. + ~.--~----J. "-0---"--- --_. tl Shell moves to Sea change unify boards and

IS, .y ~llY lIe look at merger am. ByCarola Hoyos and James Boxell panies, rather than a full merger, in London and could be Shell's best option. Ian Bickerton in Amsterdam OIL PRICES KEEP RISING Shell in January revealed it had wrongly booked more than Royal Dutch/Shell, the energy Oil prices rose further yesterday 20 per cent of its oil and gas group, has reached a preliminary despite an assurance from Saudi reserves with the US Securities agreement to unify its two boards Arabia, the world's largest oil and Exchange Commission. Shell and has hired bankers to assess exporter, that it could is also under pressure because it the feasibility of merging its immediately tap spare production lags behind its peers in its funda- Dutch and British holding com- capacity of about 1.3mbarrels a mental business of finding and panies. day and that its oil installations producing oil and natural gas. The review, advocated by sev- After months of pressure from were well-defended, write Kevin eral important members of investors, rating agencies and Shell's steering committee, goes Morrison and Henry Tricks. regulators, most investors had beyond investors' expectations. New figures showed global oil expected that the world's third The advocates of reform are demand was stronger than largest energy group would at pushing for a "root and branch" expected, while USinventories had most unify its Dutch and UK restructuring, including consider- fallen. Meanwhile, tropical storms supervisory boards. ~to ation of a full merger, to restore in the Gulf of Mexico forced many But people close to the discus- the company's credibility. They operators to suspend production. sions say far more is seriously see less resistance than they had USbenchmark crude futures considered - although the details expected for their proposals. closed up 31cents at $44.83 a of the reform, the most ambitious Royal Dutch/Shell at present is in the company's 100·year his- md made up of Royal Dutch, the barrel while Brent crude hit a tory; have still to be determined. Dutch holding company control- record high of $4l.70. They also say that the working ling 60 per cent, and "Shell" Report, Page 5 group advising the steering com- Transport and Trading, the UK· Commodities, Page 45 mittee about how the reform side controlling the remaining 40 would work and on the implica- Details of the reform, which around with it, make more solid Services Authority, the UK regu- per cent. The two companies tions - especially in terms of would take three to five years to the relationship between the two, lator, and agreed to pay $151m. ms have separate main stock unification, and other proposals, Shell's international tax burden complete, according to its advo- it requires quite a bit of work." exchange listings in Amsterdam . would need the vote of both - has not yet completed its work. cates, are expected to be made Jeroen van der Veer, the Lex, Page 18 arid London. boards and an agreement at next Some UK board members are public in November. group's chairman, said recently Lombard, Page 20 . Informal agreement has been year's AGM. pushing for a 50/50 structure, A person close to the talks the review committee was still Shell's conundrum, Page 21 reached by members of the Some legal experts in the UK which would deprive their Dutch said: "This is not a straightfor- examining drastic options. Mudlark, Page 22 boards that the least Shell needs and the Netherlands, and some counterparts of what amounts in ward exercise. The current corpo- Shell last month settled its dis- Greater role for Rosneft, Page 24 to do i~ to unify its boards. But advocates of the reform, believe effect to a veto over important rate structure has been in place pute about its reserves booking Jakarta shakes up Pertamina, Page 25 any formal decision about the closer alignment of the two com- decisions of,the group. for 100years. If you want to play with the SEC and the Financial Newsfile: www.ft.com/shell / \