Shell’s chief executive on the oil industry, the Arctic, Russia, CO2 controls and the company’s future

Executive pay at Shell has become a story because of the bonuses and other incentives paid to executives including Jeroen van der Veer, the CEO. Advisers to investors have complained about the awards, and a shareholder revolt is looming.

Whether or not you think Mr van der Veer’s pay awards are justified – and Shell did pay him 58 per cent more in 2008 than in 2007 – it is hard to argue that he has done a bad job during his five years at the top of the company. Shell’s performance may not have been spectacular, but it has maintained its independence and risen to the rank of Europe’s biggest – and the West’s second-biggest – oil company by market value.

Mr van der Veer was interviewed in the FT last week, giving his thoughts on his five-year tenure at the top of Shell and the crisis in the oil industry caused by $50 crude. There is much more of that in the transcript (lightly edited) below. He expands on those issues, and talks about Shell’s plans in the Arctic and Australia, the problems of Russia’s oil industry, and the thinking behind the company’s cuts in investment in wind power.

More in the FT (video: Jeroen van der Veer of Shell on oil prices)

Q: How deep is the hole that the industry is in right now?
A: Oil prices came down very sharply, I think at the speed that hardly anybody expected. Secondly, there was a loss of demand as well, especially in the US and Europe and less so in the Far East. And thirdly, usually people don’t notice it so much but we have quite acquired some volatility in currencies as well. So you have to live with that and, of course, you have to look at your customers: whether they still have the cash to pay for their supplies.

Q: Have you been feeling more positive in the past few weeks, now the oil price has recovered from less than $40 at the start of the year to about $50 today? Does that change your perception of the outlook?

A: No, not really. What we have said, basically, for quite some months at Shell, is nobody knows how long this recession will last. And I think the best proof is that nobody forecast how fast it went down in September. So if you can’t forecast that, why can you forecast on how long it will last? The second thing is that, my expression about it is there is not a little bell ringing that this is the lowest point. You don’t know yet, and only from hindsight you can say that was the lowest point. So as a company that’s very important. He we are not in the forecasting business. We’d like to come up as a strong company out of this difficult period. So we assume – simply as an assumption – that the economic downturn will last longer than a year.

Q: How do the changes the industry is going through now affect your view of the long term?
A: Take five to ten years out. We are convinced that the business environment for energy will be quite strong. Now why is that? You have more people all the time; we go from six to nine billion people; nine billion in 2050. All people like having electricity, and people like to transport themselves. So even if you take a lot of energy efficiency into account we see rising demands for energy whilst we see all the bottlenecks on how to get easy oil out of the ground, or easy gas; [it is] more difficult. We see the constraints also from CO2. So the supply side, while it’s not an easy one, the demand side goes up. Or to say it differently, if we invest not enough today – as a total industry, not specifically Shell – then in fact the next cycle is already in the making because we see this long-term action between supply and demand.

Q: And do you think that’s exactly the position we’re in right now?
A: Yes. Companies are cutting investment. Let me look at Shell. Even at today’s oil prices, there are still profitable opportunities to start. So that’s not the bottom line. But like all other companies, if you have less income and less cash flow because oil prices come down, you will be very prudent with what you do with your capital. And there may be other companies who say, no, we have good opportunities but we can’t finance them. So at this moment our concern is that the industry under-invests and it leads, over some time, to the next price hike seven years out.

Q: You are sticking, broadly speaking with your current spending plans, one of the biggest capital spending programmes in the world at $31bn-$32bn. As a result of that, Shell’s gearing is expected to rise very significantly from about 6% to something in the lows 20s. Is that going to be sustainable? Are you going to be able to keep on investing at that kind of rate if the downturn lasts longer than a year and oil prices stay low?

A: Yes and no. We are not immediately nervous about the oil price, even [if] the oil price is $35 per barrel. We are not directly very nervous. If the oil price stays fairly low, your gearing would run up all the time because you are still a high investor and you pay dividends. At a certain moment it may go up too high, that’s why we said in our strategy update that I would prefer a gearing ratio between 20% and 30%. We are not there as yet, and even as this year’s programme, and the way we look at this year we will not get to that 30%. Now, if next year, or the year after that, that does happen, then we have to see exactly what our main moving parts are. To give you an example, if the business environment stays fairly lousy I don’t hope that, but if that’s the case then we expect very large procurement savings for all our suppliers, so more things start to move. Now, how will it be with labour costs in the world? So there are more things to look at. I think the best thing is to say: ‘okay, we will be prudent about our maximum leverage but we don’t start to cut back, or take that very far.’ We do a bit less, but it is still $31bn. And of course, we expect in what we invest in the coming months or in the coming years the investment will be at a lower and more advantageous procurement cost for Shell compared to the overheated market of more than two years ago.

Q: One aspect of cutting capital expenditure you’ve been talking about is that you have said you are not going to invest any more in wind or solar power, which has led to quite a lot of criticism from environmental groups. Do you think that there is a fundamental shift in that happening in terms of the renewable energy, and it does not now have as bright a future as people thought a year or two ago.

A: This is a real complicated subject, because the public expects more energy, lower CO2 and companies like Shell should take the lead. Now, we think that we do quite a lot but we cannot do it all. So what we said, we think that biofuels have a good future – that is sustainable biofuels, no competition with food or with fresh water, that needs the latest technology, and we are trying to develop that technology now, as we speak. And technology helps people to make better biofuels from a sustainability point of view. Then you look at carbon capture and storage – why is that? It’s not an easy technology, it’s quite costly, you capture the carbon dioxide, you have to put in a pipe to get it into the ground, and you have to find business models. And then people like to know does it stay there? For how long will it stay there? Who monitors it, and all those questions. But it is a technology which can have a real relatively big impact on the size of the problem, so that’s why: we don’t think it is easy, but because of the big impact. Now, at the same time we felt that we are a reasonable wind player, 550 megawatts, which is commensurable to the larger players in the world. Our problem, however, is that given the circumstances and our expected returns of profitability on new, large scale wind projects, we have problems to get it off the ground. So whilst Shell, as a commercial enterprise, can see we can spend more money in oil and gas that meets our profitability criteria, and we are convinced that there is demand for that oil and gas, that is the problem, that if we put all those billions into wind energy that is a much lower profitability, or even not [covering] the cost of capital, at all. So we have to make choices.

Q: You are stepping down as Chief Executive at the end of June after more than five years at the top. You took over the company when it was in a very unstable and rocky position because of the reserve scandal that broke in 2004. What do you think you’ve learnt in your time as chief executive, and what do you think you are leaving behind you?

A: It is still too early to reflect on that. You had better wait until the last moment. But I took over in a time [when] we had problems with the reserves and we had to get it behind us. The first priority was that I had reviewed the business and I was concerned that our reputation would have been damaged, so our customers would leave us or we can’t get new projects. That was not the case, I can say that now, but it was my concern at the time. And then I had the issue of culture and structure. Culture is very much the culture in the company: the behaviours. And we launched there what we called the enterprise first programme, [which] is basically what you can do for the company, and as a result if you do good for a company you make progress in the company or you get more salary. This was paraphrased from Kennedy: there is a lot that Shell can do for you, and that is the secret. I think, if you look at what has happened now in some other industries over the past year, we were pretty ahead of that, frankly. And the second one was the structure, which later became the unification and, in fact, Royal Dutch Shell is now a British plc with the seat in London whilst the headquarters are in The Hague. That is now all possible in Europe. I have to say that was a big step in our history, we are only three or four years in it and so far [it has been] really very good.

Q: And looking forward, what does the future hold for Shell?
A: We’re still saying that Shell, companies like Shell should be very good at technology. The easy stuff can be done by smaller companies, by national oil companies and that is where we can’t make any money. This is like a classic entrepreneurial factor; we have to bring something that other companies cannot bring to the table. That’s technology or we can operate things better; better competition or more safe, or we can go to deeper water or we can get more oil out of the ground than anybody else, which may require technology, and we call that operational excellence. And the third one is to build the future of the oil and gas industry, and they will be very large projects. Like in Qatar, three years ago we hardly had anybody there, we now have 42,000 construction workers for one project we do there. Then we have another project, another 10,000 people who do construction. And then say two or three years out you have hundreds of operators; not many people can do that. We call that large integrated project management. So they are the key differentiators for Shell to win the game of the future.

Q: You talk about leaving Shell in the strongest possible position for the upturn, which means you keep investing. What about cost-cutting, are there job reductions? BP, for example, has talked about a large number of jobs going.
A: The art is to figure out an investment level which can go a bit up and a bit down, subject to the business environment, so subject to oil and gas prices, but not to have huge swings up and down. Because the nature of the industry is fairly long term, you are building for years. I know from my chemicals days, you have chemical companies and they invested and the margins were very good, and they cut it all when the margins were bad. And most of those companies didn’t make it. The best chemical companies are relatively constant investors. Now we will try to do the same for Shell, and by doing that you have much more quality of project preparation by constant investment, project execution and you benefit of course from lower construction prices now. That’s one.
Then your secondary question is, do you have cost-cutting targets? Now the way we do that, we basically have classified at Shell say about 40 to 50 sub-entities, and then we try to benchmark those entities with the competition. For example, an entity can be a large refinery or an entity can be a group of North Sea oil production fields, and then we benchmark them with the competition and you benchmark them on unit cost, on what you get for your cost, the cost for a purpose, it can be production or any liability or whatever is relevant. And then you benchmark them on safety, we like to operate our sites more safely, or environment if that’s important. And we benchmark them on CO2, because we see that coming. We see at the moment that the public thinks: ‘well fine, if you operate that, but we would like to know that you do that with lower CO2.’
Now that is the whole benchmarking exercise, and then I think the art is that you become what we call top-quartile, so in the best 25%. Now if you are not there, then you say to the local management, okay make a plan that moves you up. But this is a very dynamic thing, because the competition don’t sit on their hands. And we apply it as well for what is normally labelled as overheads, so it is not only refineries or North Sea fields, but it is for instance how we do finance worldwide or how we do HR. This is quite a programme. We don’t see any point to add up the figures in savings or the number of jobs, and sometimes it is not that easy because if a back office goes from Europe, a back office in finance I should say, goes from Europe say to the Philippines, there’s a job loss here but a job gain there. So it’s a much more dynamic game. And we think that by all those apparently very big cost saving or labour saving targets we only create unrest, whilst our team are doing a quality job in a tailor-made way.

Q: So what happened to your headcount last year?

A: It [fell to] 102,000, which is quite remarkable because we recruited another [I think] close to 5,000 people as well. So that shows, and that has to do with demographics in our industry, we have quite some people retiring. So as yet, we think we can do what I said, the quality and tailor-made job, because if we slow down our new recruitment, we know that a lot of people retire, and then you have the question of replacing people, etc. But in the end, we have quite some good flexibilities.

Q: Have you run redundancy programmes across the whole company?

A: No, we always look at it on a unit by unit basis.

Q: And there would have been redundancy programmes in some units?

A: Yes, there are certainly units where you reduce people, absolutely. And that can be either because the jobs go from Europe to the Philippines, or [because] this is of course a good time to be very critical whether you can do some weeding. During the days of the high oil prices, in hindsight always things slip in, which you should take out.

Q: And the total headcount will be lower then at the end of this year than it was at the start?

A: Yes. We have not given any estimate, but there is no doubt in my mind that this year, we will end with a lower headcount. As I said, we look at it on an asset by asset basis, and I look at the overheads, and I see that as an outcome And the targets, we set targets on an asset by asset basis as well. That is important, and I think that is much better. This is a bit of a message to the industry as well. I think in the end what counts is how efficient you were in a certain asset, so the whole idea of management is to set the targets on an asset by asset basis, or for a specific function.

Q: This top quartile benchmarking, is this has been something which has been going on for years?

A: No, I must say, I learned that again from my chemicals and refinery background. We started to make the programme in fact in my first year, 2004, but it took quite a time before we got enough traction, and people said, well, hang on, fairly interesting, but you can’t benchmark my outfit, because I’m so unique and there will be no data. And then it appears that I think the quality of the data of the competition is very good. Secondly the good thing about, let me tell a little story. When I was a kind of middle-rank manager, in middle-management, a refinery manager, it’s a long time ago, then you always get a target from your boss. You have to do so many percentage points better than last year. So you have this much here, and then you have to get so many per cent out of it. Now sometimes that was a very soft target, because I was new there, I could do it easily. Sometimes it was already very efficient and then it was very difficult to do. But whichever way, it always works as a kind of persuasion, and if you benchmark with the competition you say, company so-and-so, they do the same as you do in Shell, and they can do that with lower cost and less people, then immediately it brings out, together with all your direct reports of your own people who report to you, it brings out this competitive element. Hang on, we should beat those guys. Why is that? What’s their secret? And people start to help you, because people are basically competitive. So benchmarking is a much better motivation tool than saying, 10% less than the previous year. And basically we now try to apply that concept in Shell worldwide. You take in the interest of the people. If you say, well they run that installation with, I don’t know, 10 persons and we do it with 16. Then people, they will use all their contacts to figure out, how can they do that with 10, what is it. So you get a kind of positive discussion. Rather that than the kind of discussion: oh no, I can’t do that.

Q: Back to your investment plans: there was something that quite a few people commented on at the strategy presentation in March, which was that you were being more cautious about the growth outlook for the next decade. You are talking about 2% to 3% growth now out to 2012, where in the past you said it was through the next decade. Is that why you are now being more cautious about that growth outlook, because you’re not quite so sure about being able to sustain the investment?

A: I think the most simple way to say it is, if you would like to have 2% to 3% growth for ever, you have to be a very big investor for ever. You can make it more complicated than that, but that’s the essential point, especially because we would like to have part of our future investments in what we call long life assets. Now long life assets are even more expensive in the beginning than non-long life assets. Or the other way round, if you don’t give the firm commitment that we will be a huge investors whatever happens, irrespective of the oil price, then you say that sooner or later – or rather, later it hits your production. It’s that simple.

Q: So when people think about Shell’s growth into the next decade, what should we be looking out for? What are the key project that are going to create growth in the next decade?

A: [In our strategy presentation to investors] we made a whole list of about 20 projects, 15 or 20 projects with exactly all the production and et cetera, what we can do. If you look at that list that are usually relatively big projects, you see they are all over the world, they are oil and gas, they are long life, or not long life, but most of them you can even have a feel: hey, hang on, not every small company can start those projects. So then I have indirectly answered your question. We will earmark projects where we will bring something unique to the table because that’s the reason, that’s a commercial condition, that people still like us, and we can do a good job. A good job is not only economics, that is your environmental footprint, indigenous people, etc.

Q: Can you give me some examples that will be particularly important?

A: I guess it’s if you select one area, then the others feel left out. But I think what is a very interesting development, not necessarily this year, but for the coming decade and after that, is the Arctic. This is the north of Canada and north of Alaska. We think there is a lot of oil and gas over there. We do think that from a safety point of view and from an environmental point of view, you can work safely there. We fully accept that there should be strict structures, we think that’s good because then you get only operators who have the capability to work there. And we think that the world, and basically it is a government decision, it is not Shell’s decision to open those areas for oil production, oil, gas production, but if they are opened up we would like to demonstrate that Shell is one of the responsible operators, based on our Sakhalin experience, regional experience, etc. For instance, we are reliable; we have more projects. And then we worked in Siberia, in Salym, we worked in the Athabasca oil sands, so that is more the cold climate experience.

The completely different story, as another example, is probably just the other side of the world, is Australia. We think you’ll get more LNG projects in Australia, from Australia to the Far East. The timing is not as clear as yet, but there are still many projects coming there, and we think the Chinese market, and the Japanese, Korean and other markets, are very keen to import Australian LNG

Q: Your interest there is on the north-west shelf, isn’t it, more than in coal bed methane?

A: There are all kinds of joint ventures. We have existing joint ventures, and of course we have drilled for oil and gas, we have ideas about new joint ventures, and that is all the time with different partners. Now the big one for instance is not indicated the timing for FID, but not too far out, is Gorgon, which is a Chevron operated project. We are 25 per cent partners: it is 50, 25, 25, Chevron, Exxon, Shell.

Q: They are expected to take FID this year?

A: Chevron has to announce that, [but] preparations are very far in progress.

Q: You are more doubtful about turning coal bed methane into LNG, though?

A: We think it is an interesting and promising technology, one step at a time. It is a kind of technology which you like to understand it; and you have to realise that you need always pretty good world market prices if you apply it for export. Because you start with coal seam gas, which is not the cheapest gas to produce. If you can still make LNG of it, is it possible? Yes, but you need pretty firm LNG prices.

Q: You mentioned the Arctic, you’ve had great legal problems in Alaska, you haven’t been able to drill yet, and I think you are still not going to be able to drill this year either, are you?

A: We have assumed, at least in our planning, that we don’t drill this year, and we have simply to wait, because the legal problem is basically between the NGOs and the government. Because they think that the government should not have given the permits. We are standing at the sideline, very interested I have to say in the outcome, but we are at the sideline.

Q: That shows that it is going to be difficult if you’re targeting the Arctic, because political sensitivity is very high.

A: Yeah, so that’s why we bid for acreage in the Chukchi Sea last year. Again there we will do very careful preparations because we are very aware of the environmental sensitivity. We are aware that certain NGOs don’t support it, however it was a government decision to open that area. We will make now plans, but we have of course assumed this will take quite some time.

Q: Meanwhile in Canada, you have delayed phase two of the Athabasca Oil Sands Project expansion. How long do you think that delay might be?

EC I think for me the key factor is that overheating goes out of the market because then you can construct a project at substantially lower cost, realise that we made the first expansion, so when we made the first mark, we started it in 2003, and basically the break-even cost was below the $30 per barrel at that moment when we took the decision. I don’t expect to go back to that level, but I think it should come a long way down, and I think there is a second one. We would like to have some clarity about what to do or not to do with the CO2, because that is sensitive on the economics. And sensitive on the economics and on our reputation, I should say.

Q: The figure generally talked about last year was that for a new project, you need about $90 to $100 oil?

A: We have never given a figure, but it is more than the oil price today.

Q: And are there signs yet that costs are starting to come down?

A: You see a bit, but certainly not enough. If one assumes that the peak in the price was the third quarter last year, if you take that as a turning point, it usually takes between one and two years before you see that the prices really come down.

Q: You mentioned CO2. Under the new EPA regulations, there’s going to be CO2 reporting in the States, and you will have to give some detail in terms of CO2 emissions from crude production and so on. Is that going to make a big difference to the business?

A: No. If we have to report, that’s fine, as long as it is level. Reporting is never a problem as long as the competition reports it, because otherwise you may have competitive problems. And the government likes to actually do that, and serving governments have own agendas.

Q: But reporting is the first step to control, surely?

A: That’s fine. But then sometimes you have to explain your reporting, so if you compare a car with a truck, and a truck does miles per gallon, you see it always. You have lower miles per gallon, we think in kilometres per litre, but the US does everything the other way around. So the truck has lower miles per gallon, you can’t say trucks are wrong and personal cars are good. So in comparisons, it is always, you have to spend a bit of time that you compare apples with apples. But then that is fine. And it is in line with my philosophy. First of all, we like already to know what our relative CO2 position is. Secondly it brings out the good in people, we should try to work as energy efficiently as possible.

Q: So for example, the idea that this will be a threat to Canadian oil imports into the US, is that a serious possibility?

A: This is a very complicated subject. Because if you say, Athabasca oil sands, they are more CO2 intensive than crude oil, so we don’t like to use that for our gasoline pool. Now what can you say? First of all, there are certain heavy oils produced in the US which are equally CO2 intensive, that is one. So that feels a bit strange. Then you can say, okay but if the whole world does not produce oil sands, understand the balancing energy in the world, then it’s probably maybe coal or nuclear later, and with coal is certainly not an improvement. Then you say, do you start to attack the right source. I find it always staggering that the fuel efficiency of American passenger cars is 40% worse than European cars. So I feel whichever way you turn it, if you don’t make your fuel based on the Canadian oil sands, where does it come from? And if you don’t answer that question, it feels a bit like you are close to opportunistic policies.

Q: Another country: Iraq. You have signed the memorandum of understanding about the gas gathering project – is that making any progress?

A: In Iraq progress is so far okay, what we have developed. The art is to develop some quick wins, and I think that is the focus. And then you have to build that and you take it on. But it is a kind of step-by-step project, a project-by-project in order to achieve…

Q: And you are still in the bidding process and interested in the new oil contracts?

A: Yeah, we studied the new terms which were issued almost a month ago.

Q: And those new terms are more attractive than the old terms?

A: Yes, sure. In the end, you have to make up your mind.

Q: Moving to Russia, when you look back on the Sakhalin 2 saga, what do you conclude from it about future investment in Russia?

A: Well, the Russian agenda was that they felt that of certain what they called strategic industries – certainly oil and gas were absolutely included in that – that they should own 50% or preferably 50% plus one share. That was quite a clear and consistent agenda by President Putin, for quite some time; very consistent, high transparency. And the government sets the agenda. Now of course, we started with a project where there was no Russian partner in it. We realised that we should get a Russian partner in it, we were in discussions with Gazprom for a very long period, but we thought that [asset] swaps would work, so they would get a part of Sakhalin and we would get something somewhere else. Maybe we were too long hopeful that we can make it work, this is hindsight wisdom. But for all of those reasons we thought we made progress, we have identified candidates for the swap, etc. That’s one. Secondly is, the Sakhalin project we have built, if you compare to building houses, is a good house, it’s a good quality house, a first-class house. But we started with a too-low budget, about half of the cost of the good house. Now it was very difficult to explain when we had to cost overruns, and we said, we need a higher budget for the house. You have to realise that that partly is of course, Shell had to pay that with their shareholders, and it’s very complicated how it works. You start to pay it all yourself. But the Russian interpretation was that we would not have done a good job, so we were building a too-expensive house, not a good house. But the house is value for money, but we started with a too-low budget. We had huge problems to get that message across. And then of course, we got an intervention by the Russians who questioned whether we were doing a good job and realising that they did not own 50% of the project. Now that was over 2006, because the cost overrun was July 2005, and then it escalated. And it was very difficult to solve because, on the one hand, you had the consistent Russian agenda, on the other hand we had already invested billions of dollars. And it was simply very complex to work out a compromise which was acceptable for both parties. And of course it is not very helpful, but the reality is that I think we were front page on the FT and other newspapers nearly every day. That creates then its own dimensions and its own stakes at the table, so this was not quiet diplomacy. And many governments stepped in. That can of course be in itself helpful, but it increases the tensions then, in order to find a compromise.

Q: What about Russia today?

A: I think first of all the compromise was a very reasonable compromise, and it worked. So since Christmas 2006, a lot of satisfactory progress, good relationships with Gazprom and it worked, whilst initially a lot of people were suspicious about it. And it worked, in fact as best as it could go. Russia today is first of all, you need a higher breakeven price for the Russian budget for oil to make it run, than today’s oil price – I leave it to the experts how much higher. So you can see that, if you don’t make the break-even oil price from a government point of view, you have immediately strain in the system. On the other hand, we are a commercial enterprise, so we have been very consistent over the past two years, high oil price or low oil prices, we have appetite to invest more in Russia. I learn from the past, so we will do that with strong Russian backers. We can accept the fact that they have 50% as one initial share of, say, 51%, that is not an issue, but you should have clear understanding who works operations, how about technology, etc. That is enough. And of course it should meet our profitability criteria, but in itself there is a lot of oil and gas and we think that we can make good combinations with Russian companies because they have a lot of capable people.

Q: So for individual projects, is it possible to be profitable now investing in Russia with $50 oil?

A: Now the problem for Russia is, and the politicians are aware, is that the tax system does not automatically adapt to lower oil or gas prices. Of course they adapt the system, but it takes all the time that they have taken measures, whilst for instance the UK system, you know if you give me an oil price a year out, then I have a reasonable idea what I expect the taxation will be. The second point which is specific to Russia, is that for future oil production, they need to bring on stream what we call greenfield projects. So they have to squeeze more out of existing projects that come to naught. In the industry you say it is so much that you can do with in-fill drilling, and then you have to start with new provinces, or greenfield projects. Now greenfield projects means that you have to pay for a lot of infrastructure, because that’s why it is greenfields. You need again, if you look at those break-even prices, you need quite an oil price before you can start that. And then it is very important that you have a good understanding of the taxation regime otherwise you are not able to start such a big investment.

Q: Do you think the Russian authorities are moving to the point where they appreciate that, and that they are going to be prepared to compromise in order to get investment in?

A: I think, if you look at it over time, first of all there was very good awareness of the senior politicians, how the oil and gas industry, what they need in order to invest and to do things. But they [have to] sort out all their fiscal systems: this is not only federal, it is local… So it is hard to do that overnight. I hope it comes and that they keep on making speed.

Q: More broadly, we’ve had a few people say they believe that the era of aggressive resource nationalism is over. Do you see that?

A: Yes and no. And it is, if I go back to my feelings in 1973, 1979, and then the other way 1986, 1998 when the oil price went down, of course you see quite some countries now that, if we say we are sorry and we like your country but there is no investment priority because we can only spend our money once, and the conditions in your country are not good enough, that usually governments react on that. Having said that, I’m afraid that this longer-term price environment, and we don’t know when, but we think it’s still a strong price environment, I think it goes the other way again. So the way I see it is simply part of my job to work with this phenomenon.

Q: What can you do to protect yourself against that? I mean Venezuela, for example, is now trying to attract foreign investment, but presumably investors may come in now and in five years time find themselves being confiscated again?

A: I think if we have unique and better technology which nobody else has, and if I can demonstrate it in the eyes of the governments, of the receiving governments, the resource governments, then I have a stronger seat at the table. But if I only can do exactly the same stuff as anybody else, they can play their game. So the first is technology. The second one is project management and the third one is operational excellence. If I can demonstrate that I get a lot more stuff out of the ground and I operate it at much lower costs, in fact the message is, we can pay, from the same conditions as others, we can pay more taxation. So this is the classic, to have a good value proposition for governments. Now you can only be a heart of technology, you can’t do that overnight, so I feel very good about the technology programmes. It’s the only costs which I feel good about and that we are high in research and development and technology in the past years.

Q: You have been far and away the biggest spender of all the oil companies in terms of R&D. Why are you now cutting back?

A: Look, we have cut back a bit, compared to our original thinking. We think it is important to have relative constancy, so no huge swings, that is the policy

Q: Do you accept this critique of the oil majors, that they allowed too much capability to pass into the hands of the service companies during the 1990s?

A: I think it happened a bit in the 90s because we underinvested. But then it is complementary. If you build a house and you have a better scaffolder, if they do a more professional job, that is to my advantage. And that is the same here.

Q: For now all the five years you have been chief executive, production has fallen every year, sequentially. Is that a concern to you? If you’re trying to offer people this outlook for growth, do you think you do need to demonstrate volume growth to show that this is a company with a future?

A: No and yes. We sold 300,000 barrels per day, you have to realise that, and we have an idea that 200,000 barrels were out of action in Nigeria. So should you add that back? I’m not so sure, because those things happen. In the end, we have large capital employed, whilst we did do a lot of weeding, so that basically the capital employed is good capital employed and not bad capital employed. So from that point you have grown the company. Then we always say, a barrel is not a barrel; you have good barrels and bad barrels. And what is the point to have lots of production of not-so-good barrels. So those are all the no answers. The yes answer is that, whichever way we explain it, analysts and journalists keep on looking at your production figures, so it’s still… So even if you say five or ten times, you shouldn’t do that, but they still do that, it is still a factor of consideration. So this is the example of mixed feelings.

Q: The idea that was very prevalent a year ago, although it is rather less talked about now, that essentially this was a business model which doesn’t have a future. The big, integrated oil company is a fantastic kind of cash generation machine, making these enormous profits, but is not a long-term growth business. Is that a fair assessment?

A: All I see is that Mother Nature put enough oil and gas in the ground; we try to get well renewable off the ground. I see plenty of investment opportunities, much better than the cost of capital. If we are successful grabbing those opportunities, you have a fantastic growth company.

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