Insight: Deep Shell problems weigh on new boss van Beurden

Tue Jan 21, 2014 12:55pm EST
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By Andrew Callus

LONDON (Reuters) - Royal Dutch Shell's (RDSa.L: Quote) chief executive Ben van Beurden has, on the face of it, played the classic "new boss" card - using a barely justified profit warning to brighten his own future by making the past look bad.

The truth is quite different, the energy company says, and possibly far more worrying for investors.

Three trading days after van Beurden's warning last Friday that quarterly net profit will fall far short of expectations, Shell's shares are barely down 1.5 percent in a flat market.

But while circumstances conspired to make the fourth quarter particularly bad for Shell, there is no guarantee that the group will bounce back this year. Van Beurden, some shareholders say, must do more than tighten up a bit and sweep away a few cobwebs when he reveals his strategy in March.

A fortnight into his tenure, the Dutchman broke a traditional pre-results silence at Europe's biggest investor-controlled oil company. Pre-empting the official announcement on January 30, he revealed numbers showing October-December last year was Shell's worst quarter since 2009. He also called the whole 2013 performance "not what I expect from Shell".

Few commentators and analysts failed to connect the rhetoric with the fact that removal boxes have scarcely been cleared from the boss's office in The Hague. Using such warnings, new chiefs frequently try with varying degrees of subtlety to shift the blame for a company's problems on to the past leadership, and lower expectations for their own tenure.

"It's standard practice, but this was done very transparently, and that's high risk," said a person who has deep experience of corporate presentation strategies, but was not involved. "Everyone knows the game he is playing."

At $2.9 billion for adjusted earnings on a current cost of supply basis, the fourth quarter net profit figure van Beurden gave was well below market expectations of around $4.0 billion. But misses like this are common in the energy industry, and rarely have a significant or long-lasting impact on investor sentiment. Profit warnings to flag them are also rare.   Continued...

The Shell logo sign is seen at one of its gas station next to the current fuel prices display in Westminster, Colorado January 17, 2014. REUTERS/Rick Wilking