Shell Agrees to Corporate Review

SIR PHILIP WATTS, chairman of Shell, has agreed to review the corporate structure of the dual-listed Anglo-Dutch oil company in an effort to appease British investors angered by the removal in early January of a fifth of the company’s proven oil reserves. The Shell chairman said that it was a “profound issue” which had recently been raised by investors: “We need to think hard about the group structure. I think we have to get into some serious conversations with our shareholders and see what they have to say.”

Sir Philip’s agreement to discuss the corporate structure is an unprecedented concession to outside critics and may upset the delicate diplomatic balance that keeps the peace between the unequal British and Dutch shareholder interests. In a contrite presentation to City analysts and investors yesterday, Sir Philip apologised for his absence during the dramatic announcement last month that 3.9 million barrels of oil and gas had been wrongly classified as “proven”. But he firmly rejected calls for his resignation and said he had the whole-hearted support of the board to continue. Shell has appointed a working group, separate to the executive board, the Committee of Group Managing Directors, to examine what went wrong in the reserves reclassification.

Sir Philip said outside counsel would be involved in the inquiry and Walter van de Vijver, exploration managing director, said steps had been taken to improve booking controls. In future, the Committee of Managing Directors would sign off reserves annually, he said. Currently, local exploration directors have the authority to book reserves. In a special presentation on the reserves problem, Mr Van de Vijver revealed that Nigeria accounted for two billion of the barrels wrongly booked over a period from 1994 to 2002. A single Australian project, Gorgon, represented more than half a billion barrels.

The evidence of almost a decade of bad decisions on booking reserves emerged as Shell revealed a weak fourth-quarter profits performance with adjusted current cost earnings falling by a third to $1.8 billion (£1 billion). Full-year current cost earnings were up by 46 per cent to $12.9 billion, which Sir Philip said was a group record. Oil and gas production fell 2 per cent and Mr Van de Vijver cautioned that growth in hydrocarbon output would not resume until 2006.

The decision to review Shell’s dual-listed corporate structure is likely to arouse concern among those who fear that a decision to merge the two parents would leave the Dutch arm with management control. Shell’s management structure was developed by McKinsey, the consultancy, in an effort to end the confusion of decision making involving four boards, two for each of the Dutch and British parents.

Shell’s structure is a worry for British fund managers who dislike the amorphous board, which lacks a chief executive and non-executive chairman. But some analysts were sceptical whether merging the Dutch and British parents would make any difference.