Shell’s CEO Peter Voser interview transcript: on Canada’s oil sands, jobs, acquisitions, US gas, Iraq, Nigeria, Copenhagen and more

Shell’s CEO Peter Voser has given his first full interview since taking over at Europe’s second-biggest oil and gas group last July.

The news story pulled out by the FT set out his plans for a slow-down in development of Canada’s oil sands; a line that has been picked up in Canada and elsewhere. He also aired some strong views on M&A.

But he spoke for almost an hour and a half in total, and there is plenty more material from the conversation that there was not room for in the newspaper. As well as his thoughts on strategy, he also raised many interesting points about his style of leadership, the changes he has already made at Shell, key areas such as the US, Iraq and Nigeria, and the Copenhagen climate talks.

Below, lightly edited, is the full transcript of the interview.

Peter Voser, the chief executive of Royal Dutch Shell, spoke to Ed Crooks, the FT’s energy editor, on January 14 2010. This is an edited transcript of the interview

Q: You took over as CEO last July. How would you say your first half-year has gone?

A: I think we achieved a lot compared to what I thought at the beginning when we planned the whole Transition 09 [restructuring plan]. I was very pleased with the way the company kept their focus on the operational performance, whilst at the same time tackling some of the issues which I wanted to tackle. I think we had a good half year in terms of getting more opportunities into our funnel, so from that point of view I look back at a good start in a difficult environment.

Q: It’s a difficult environment still because of the global recession?

A: Yes, I think you have the external environment which clearly is a key challenge. You can clearly see from an overall recession point of view, but also how some of the downstream margins have been developing, etcetera. Being a company quite exposed to downstream clearly that is a challenge, mainly the refining side.

And the other one is clearly when you embark on a major restructuring like we have done, when you start to move people out, when you put a clear emphasis on bringing costs down sharply and fast, that generates uncertainties inside the company and that needs to be managed. But I’m actually quite positive on how the organisation has responded to the tasks and the challenges I’ve put in front of them. I would say so far, so good.

Q: It has all happened very quickly. In six months, 5,000 jobs have gone, there has been a lot of change in management and corporate structure. Is that process now over?

A: Yes. When you do these kinds of things the first part is really what you just described: put the new structures in place, put the leaders in place, select those who will stay, select those who will not stay, and I think that phase is over. What comes now obviously is the next phase; delivering in 2010 the plan that we have put together.

I’m aiming at changing the way we do business, the way we focus on business, the way we generate long-term value. So this is all about now performance, this all about now monitoring the performance and steering it within a given strategy. I think that’s now the next phase to come. So in that sense, yes, restructuring for me is done, the Transition 09, and now it’s about delivery.

Q: You talk about tough targets for the company; how are they set?

A: What I’ve done now is, we have tough targets for the group, but then each business has its own targets. I’ve got a performance contract with each business leader, with each functional leader, and they know what to do. They have cascaded that further down now quite clearly, so everybody knows what they have to deliver in 2010 and we will keep monitoring and checking that.

So I’ve made it very clear that everybody will have, up to the top, including the CEO, a clear performance contract for the short-term, but also for the medium-term because in our business we need to keep both things going. You cannot just focus on the next 12 months. You need to focus on the long-term growth pipeline, so you need to have both measures.

Q: What sorts of targets are you setting?

A: There are obviously what I call the very hard number objectives, so that comes from income, cash, how much capital you are allocated; [there are] safety targets, there are people targets; there are targets on exploration success, on the upstream, and targets around new marketing initiatives and products on the downstream side, et cetera.

But there are also softer targets which are around leadership and development of leaders, because having now embedded the new structure, this needs to be followed by aligning everybody behind the values which I’ve put out, which is around being more externally focused, being sharper and faster in decision taking, taking seriously the accountability at all levels, simplifying our processes and the business. So all of this is now embedded in personal performance contracts and at the business and at individual levels, and that’s how they’re going to drive performance.

I came in as a CEO midyear, [and] I’ve taken the step to restructure first, and [the company] had the targets from my predecessor. But now it’s my first full year coming in, and [I am] starting to put targets in place, and show the way I want to deliver these targets. So while many have talked about cost reduction, the ultimate vision from my side is clearly this is about value delivery and cost is only one part of it. You can spend cost if you deliver more value – it’s never going to stand in the way of that – but it’s quite clear we have to take costs out which are not necessary.

Q: You have been giving analysts numbers on cost reduction. What are the savings you are making?

A: Well, we have only said what we have delivered. I haven’t given an outlook for 2010 other than saying that the savings are in the billions, and we have achieved a significant amount in the first nine months already in 2009. We will report in a few weeks time on what that number is for the total year. We have talked about 5,000 staff [leaving]; that we have done.

Q: That’s 5,000 from, what, was it 102,000?

A: Yes.

Q: So to about 97,000?

A: 98, 97 [thousand], and that will not be all reflected by the end of the year because some of them are obviously now in the process of going out. Some of it will be in 2010. The cost savings which we have already reported on, they’re obviously excluding the effects, for example, of those 5,000 people; that’s still to come.

But I think the important point here is not the cost of the 5,000 people alone; it is actually the activities and the work they are generating as well. So I clearly am expecting a reduction in [those] activities, in pushing things more to the front line rather than to the back office headquarters.

Q: So the process of job cuts is continuing?

A: The 2010 plan is to have a continuation of optimising our structures; that’s quite clear. We have talked a lot about projects and technology, and the two upstream businesses which we have. We haven’t talked too much about how we’re moving forward on downstream, so it’s quite clear [there will be changes], but this is a normal way of doing business. You are just setting target levels and setting cost levels. And therefore there will be more in 2010, but I wouldn’t then call that a new restructuring phase. This is just staying competitive versus our major competitors, and that will bring with it obviously changes in structures, in people numbers, and in cost levels, but it will also allow us to bring in higher value products or whatever it is. So it is then the mixture of everything, rather than just focusing on costs.

Q: It seems like when you took over, you had a very detailed plan worked out Had you been working on these ideas for a long time? I mean, had you been working on them even before you were appointed?

A: Yes. It was great that I had the opportunity to start with all of this and announce it still when my predecessor was around. This really saved me time, so I could hit the ground running. On July 1 we were already geared up to move, which was great. Having been announced [as the new CEO] eight months before taking over also gave me some time to think in more detail. But I think the key issue here is that I would not have accepted the job [otherwise]. Let me rephrase that: in the discussion of becoming the CEO and being nominated, I clearly outlined what I had in mind, and how to take the company forward, and that was a key decision point for me; and I would assume also for the board in selecting me at the end of the day. So I had in mind what I wanted to do. I further refined it, obviously, in those eight months, and then involved some of my new leaders just a few weeks before I announced it, but otherwise I was pretty clear on where I wanted to go.

Q: The key principles behind that were, what, simplification and sharpening your focus?

A: I think it has to do with my long-term vision of the industry. So I clearly see one of the major differentiators in our industry in the long-term is around innovation and technology. Therefore, I have my clear vision on what to do with R&D, this technology development and deployment of it, and then how to apply it and how to move the big projects forward. So that was one clear vision I had and that’s why I brought everything together [in the new projects and technology division].

The second one which I had clearly is I want the businesses to be in charge in leading it at the front end, and they are really responsible for two things: on the upstream side it is managing the assets which we have, bringing the new opportunities in which then Matthias [Bichsel, head of the projects and technology division] can develop and give it back to them, and third, manage the external stakeholders. That can be on the commercial side, but it can also be on the government and on the NGO side.

I see our industry becoming more complex in the external stakeholder world in the longer term, so I wanted to react to that early, and for that I took a few steps on the business side. I have Malcolm [Brinded, head of upstream outside the Americas] and Marvin [Odum, heads of upstream in America] running the upstream in two geographies, and they’re really responsible for the opportunities, then the stakeholder management, and then managing the assets which we have today in a top, world-class, quartile performance.

A: So how do you make that work? I mean, what are the characteristics of good stakeholder management and getting those relations right?

Q: Let me put it this way: in order to get commercial opportunities into your portfolio for longer-term growth you need those who are closest to the areas where you’re operating today, or in some areas you need them to be in charge of finding those opportunities. They need to have the key contacts with governments, which in many places are the key stakeholder, either represented through a national oil company, or represented by the fact that they give out permits and leases, et cetera. [There are also] local communities, NGOs, all of those [stakeholders].
Now, to manage that remotely out of The Hague is not going to work. You need to manage that where you actually face it. So we had a corporate organisation doing a lot of sustainable development work for our projects, but I just had a clear feeling they were too far away from the business, so I’ve moved them from corporate into the business lines, because that’s where it actually counts. Long-term all these above-the-ground risks will be more complex, and that needs to be managed. So there’s a competitive focus on operating our assets there, but it’s an opportunity generating element, and there is a stakeholder above-the-ground risk element there.

The next one was [that] I was not happy with the size of the headquarters; it was too big and slowed things down. So I wanted to push whatever we could into the business lines where we had it, and the rest of the functional functions have to be leaner and smaller going forward, and that’s in process now as well.

They all have their targets, and we have moved HSE [health, safety and environment] out into the businesses – that’s where it happens – and always made sure that the executives have double roles. So one is managing HSE of P&T [projects and technology], for example, but he has a double role: he is [also] the global HSE manager for Shell. So you can link the experience at the front line to the policy setting for the company. In the other role, he has a direct line to me, but he’s managed day in, day out by Matthias [Bichsel].

The same is for sustainable development, which is Malcolm [Brinded] in upstream. Just push it out to where it actually belongs, because otherwise you keep arguing between the advisors and the policy setters in the headquarters, and those who have to implement it, and you never get a consensus there, and that is wrong. Move it out there and actually drive it through the business, rather than drive it through a corporate view.

Q: Are those people that were based in this building here in The Hague?

A: Yes, most of them have been here and they are now being pushed out.

Q: How many have been relocated?

A: I don’t have a number here, but I’ll give you a few examples. You just walk into this floor. Now, this was all the Executive Committee floor. We had everybody here. Linda [Cook, the former head of gas and power, no longer with Shell] was on the other side in that building. Now, if you walk around now, Marvin [Odum] is in Houston. Malcolm and Matthias are in Rijswijk [the technology centre, outside The Hague]. Simon [Henry, the CFO] is here, just next door, and I’m here and my HR and my legal. And Mark [Williams, the head of downstream] is in London. So I want them out. They come to the headquarters from time to time, but I pushed them out. We had two to three executive committee meetings a month in the past; I now have one a month, full stop. So this is about delivering the business and the results, and not about headquarters meetings.

Q: How far have you been benchmarking yourself against other companies in terms of structures and processes? At BP, Tony Hayward has launched a restructuring exercise which is similar in some ways. What are the similarities and differences between what you are doing at Shell and what you see across the industry?

A: Yes, clearly I looked at all the structures of our competitors, but I think one also has to be careful; whilst you can look at them, you always have to take into account your own company DNA, and that DNA may not fit a certain structure which a competitor is running.
If I take a general example, the Americans are centralising much more than the Europeans now. How is our DNA structured? It’s most probably not a centralising kind of DNA. So you need to find a way of making sure that you get the benefits of what an American company has through that element, but at the same time, we don’t want to lose our strengths, which is that we are, in stakeholder management terms, in the local environment we are very strong, the way we manage ourselves in the countries, the way we build relationships with the key decision takers within countries or regions, etcetera, and you don’t want to lose that.
So you need to know your DNA, you need to see your strengths, and then structure it around that by taking full advantage of knowledge of what others are achieving with different structures.

If you look at what I’ve done now, you will find pockets which others have done the same way. So, for example, PT [projects and technology]: if you look at Chevron’s structure, it is not too far away from us. They are a little bit more fragmented than what we have done. Exxon, for example, is different. They have a development [unit] and they have a production [unit], which I have tried to avoid in that sense, but in a way I’m pretty close to that because development is pretty much in PTs hands, and then the production and opportunities are on the other side. Chevron has centralised project delivery, for example, which I also have with Matthias. So I think one does look at all of this, but then at the end you need to match it with your strengths, and that’s what I tried to do.

Q: So it’s actually been a process of both centralisation for some functions and decentralisation for others?

A: Absolutely. I said in my May speech [to senior executives], which has been widely circulated, that I believe in globalisation, for example. That’s the right way to go in our business. But I think we have taken this into a too extreme status in certain areas, so we are just globalised for the sake of globalisation in some parts which is no good.

Q: Globalised in terms of what?

A: A unified business structure, for example. We had an evolution there that we went through. We came from a very decentralised local structure, we went into regional structures on the downstream side – I was part of that move – and then we globalised, but by doing so we may have weakened some parts of the local structure which are fundamental to the way we do business.

So I said in Berlin back then [in May], we need to rebalance some of this, because it’s not that globalisation just means you globalise everywhere. You need to do it according to the business model you want to run, and maybe it’s not always the right thing to just go and do it for everybody; you need to make judgement calls, and I think that’s the rebalancing which we are doing at the moment.

Q: Does that mean giving more autonomy and independence to country chiefs, or at what level does it happen?

A: I wouldn’t say countries. I think it’s at various levels. It could be regional, but some other things which maybe have been done more regionally have actually now globalised because I had to break through the resistance level. I think that’s one way of going, but in other areas I had to say no, I clearly don’t want a global span, I want a regional span, and that’s what we have optimised in the last six to eight months now.

Q: You mentioned the process of your appointment. As you’ll know, there was speculation that you weren’t going to take the job, which was reported by the Financial Times, among others. What is the true story of how that came about?

A: This is a very simple story. I made it clear internally here and to the board that I think I’m okay where I am, and I therefore would not go for the CEO job. This was end ‘07 I guess. It was early ‘08. That was the time before the board actually started the process, but I wanted to make sure that they knew where my thinking was at that stage. Now, that somehow leaked out and I think that’s what you picked up in the FT as well, and that was no secret internally here because I said to the board, I want to make sure that everybody knows that I have thought about it and I’m happy where I am.

When the process started – the selection process – I was asked if I would participate. Well, I had no reason to actually say no, that’s quite clear, so I participated. During that phase, we had the necessary discussions, as I explained beforehand, on what’s the future of Shell and how we are going to achieve that and what would be my ideas to run it. I think once I saw the commonality in the thinking, that having gone into myself again and how I want to spend my next years, I clearly had a great appetite to take the job and actually bring this difference to the company, and I got excited about having the space and the freedom to move as fast as I wanted.

So I think this is a personal journey I’ve gone through, and I’m not shy to change decisions if I come to a different conclusion. I’ve done that many times in my life and that’s fine, that’s just as it is.

Q: How do you feel your experience fits you for this job? It’s quite unusual for someone with your background, in downstream and on the financial side. In the oil industry it’s typically geologists and engineers that get the top jobs, and very largely it would generally be people from the upstream operations.

A: Upstream, that’s correct, yes, and my background is more downstream.

Q: Exactly. Now Shell had already broken with that with Jeroen van der Veer [the previous CEO, who had run the chemicals business], but now it’s happened with you as well. Do you think in any way it is a disadvantage, if there are things about the company that you’re not as comfortable with if you had a different background?

A: I just described to you the way I thought through the whole process. I have gone through quite a period where I was thinking about this and quite clearly what comes to mind is: actually, is it important to be the geologist, the technology person, to lead a company like Shell? Or, at the end of the day, is it more important to be a senior leader as a CEO who, together with the right team, will deliver the right results?

Now, I have 25 years in this company so I think I’ve come around this company quite a bit, so I have got my knowledge. I’m certainly not a detailed technologist in that sense, but I think I came to the conclusion that at this levels the capabilities of absorbing information and constantly learning still and the knowledge of the company and to have the right team around me: that is key, rather than the background of a person.

Now, having said all of this, I have worked on both sides. I’ve worked on the business side and I’ve worked on the finance side. So from that point of view, I had my spells in the business and that’s quite clearly a key advantage in the current job. But I think at the end, this is about leadership.

Q: Why is that a key advantage?

A: It’s always good to be out at the front line and then look backwards, and actually feel some of the interesting demands you get from the headquarters from time to time, where you just can’t see actually a reason why to do it. It’s good to have that in your mind when you are at the headquarters.

Q: So how would you describe your style of leadership?

A: I have a very firm belief in giving people or leaders the freedom and the accountability. I work predominantly on strategy and on vision and on performance monitoring; these are my key ones to actually lead the company. But I leave enough space and room for people to actually manage their business with all the consequences, positive and negative, of that.

I think I’m a team player in a way, but I’m not shy to take decisions and risks, which I think that’s what a CEO should do. I’ve had plenty of experience in that over my 25-30 years of life in the business, be it either in Argentina with thousands of per cent of inflation and devaluation, so if you sleep for two hours too long the business is gone because it’s no longer worth what it used to be. ABB [the Swiss engineering group where Peter Voser was CFO] is another big step in my career where without taking risks and moving extremely fast our company would not be here today. It’s as simple as that.

So I think I’m used to taking risks, considered risk, and taking decisions. And I’m not shy, if I think it’s not going the right way, to actually change and reset and move forward. So I hardly look backwards; I always look forward.

Your question was about leadership style. I’m very much people focused, so for me the people around me are extremely important. I need the trust in order to give them the right accountability. [However], I’m normally not surrounded with those who have worked for me 30 years or so. I take the best person for the job, and if that person is actually very different to me, that most probably gives one plus one makes three, which is better. [Although] it doesn’t mean if you work with me you can’t make a career!

Q: You talk about cutting the executive committee meetings to once a month. Is that an example of, as you say, giving people autonomy?

A: Yes. Also, I’ve another one. In the past we had quite big gatherings here in Shell. We had business week, which I have also done. There was the Berlin one. But we also had gatherings where we took 60-80 people together from all functions and business. I’ve just started the new way I want to drive this company. I call it the CEO 25 group where I take those people who run a business in Shell together. So these are my Executive Committee colleagues, but then [also] those reporting to them who run the business, and we meet and we discuss strategy, performance, operating issues, let’s say a few times a year, in order to make absolutely clear that the delivery of all of us will make us competitively strong. It’s not the delivery of a few of us.

So quite clearly I like more to work with smaller groups than large groups. I think you get more out of it and it energises your business leaders as well because they know more about Shell and they know how they fit in into the total picture and what they have to deliver, but there’s no escape. We will expose that, which is okay.

Out of those 25 most probably in a few year’s time, when I go or Malcolm or Marvin goes out of the Executive Committee, those guys will come in; “guys” now female and male. It gives me visibility to them, it gives them also a little bit the burden that they need to think about Shell as a company and not just their business, so they start to get used to that, and they know if they don’t perform in these meetings that will be visible. You get peer pressure, and that’s exactly what I want. So I don’t like to have individual business units isolated, just doing their bit. This is more: this is an integrated company, and that’s the way I want to run it.

Q: It sounds quite terrifying.

A: You get exposed, which is good.

Q: How much of your time is spent here in this office?

A: Not much. I’m out in the field. I have a very firm belief and that is my value is out there, it’s with, either on the stakeholder management side or it is being visible as a leader to our people, to our businesses. I think having town hall [meetings]; we call them town halls when you are in a country, you take hundreds of staff together and just spend one-and-a-half hours talking to them and answering questions and I normally do five, ten minutes introduction and 90 per cent of the time is their time. They can ask questions, and I think they know me by now. There is no rule here. You can ask whatever you want to ask. I will normally answer. If I don’t have an answer, that has never happened, but I will just tell them I don’t know. But I think this is the best way to feel the pulse out there, so I want to be very close to our staff and our businesses. So I travel a lot, but I think that certainly at the beginning this is absolutely necessary. You need to feel the pulse.

Q: As you say, stakeholder relations, particularly government relations, are absolutely vital, central to what you do.

A: Yes, absolutely.

Q: How do you handle that between you and the other members of your team?

A: I think the way I look at this is, there is also seniority in the governments and in the national oil companies, and then we divide it along those lines. So typically, an oil minister would typically be more Marvin [Odum] and Malcolm [Brinded]. I think the president of a country is then more my one, so I think in general terms that’s how you can split it. It doesn’t always work like this. We are also at times the two of us together. We have also done that, depending who it is it might be beneficial, because the country is just too important for us.

Q: How many presidents and other heads of government have you met since taking over in that six months?

A: It’s a large number, I can tell you

Q: Has that been a priority for you?

A: Absolutely. It was a key priority to get out, because I’m not an upstream [executive] in that sense, I haven’t run an upstream business, so I was not in Malcolm’s job or in Linda’s job. I clearly needed to put emphasis on that and I have done that in the last six months

Q: So, as you say, some of these people you’d be meeting for the first time then?

A: Some of them, yes.

Q: So which countries have you been to?

A: Kazakhstan, Russia, Oman, Kuwait, Qatar, Saudi Arabia, Brazil, Nigeria, Australia, China, obviously the UK.

Q: In all of those, the meetings are at president and prime minister level?

A: Yes, always

Q: A further thought on management style, differences from Jeroen van der Veer [the previous chief executive]. Would people notice a difference and, if so, what?

A: I think I’m more direct and I’m a faster decision taker – these are the two key ones. And most probably also – but you need to ask our staff – I’m most probably slightly different in communication, because I have a very firm belief that you cannot communicate enough. So I have done a lot in the last seven months I’ve just been communicating and communicating, explaining what we are doing.

Q: And how is that done?

A: That’s town halls, it’s videos, it’s quarterly messages, it’s year-end messages, you name it.

Q: Jeroen van der Veer took over at possibly the lowest point in the company’s history, certainly a very, very low point in the company’s history. Now things are generally much better. Is it a very different task that you face?

A: Yes, I think so. He had quite clearly a crisis. He had to start to rebuild the trust in ourselves within the company: that was a big task for him. But also externally, to position the company again so that investors can trust in us. I think the big one then was to start to rebuild the upstream, fill the project pipeline and start these projects. I think in that sense during his tenure he has achieved those elements. I think now going forward it’s clearly, for me, it’s the delivery of those projects now coming.

In the shorter term, it’s just the restructuring, pushing cost out, but also setting the company to make it ready for the years after the delivery phase of these new projects, because that’s the next one to come; that’s the visionary part, the objective for the longer term. Where will the oil and gas companies go? Where is the energy industry going to go? So that’s now my task, to set that. I put a structure in place which shows you already a little bit how I think this will go, [but] it’s now the next step, which is really talking about post 2012-13, and that’s what we are working on.

Q: Arguably then you have taken over at quite a fortunately timed moment, because you’ve had these years of decline in production, years of very, very heavy capital spending, years of a big drain on the cash flow. Now it’s just starting to turn.

A: Yes, that’s it. I think my task in that sense is actually to finish what he [Jeroen van der Veer] started, which is a big piece. You need to deliver the damn thing, because just saying you’re going to build it is one thing, but it needs to work at the end, so that’s what we are working on now. So indeed, that’s correct, that’s coming. But you know out of our own experience or the industry experience, if you stand still, you just generate a hole in four or five year’s time. So, in a way, that is comparable to 2004.

We need to think of what projects and how we want to do this over the next ten years. We have started that over the last 12-18 months. Obviously we have worked very closely together, so we pushed North American gas, we pushed Australia, we pushed into Iraq, et cetera. So we are starting to set the scene for growth post 2012-2013, and that’s a key task now which is on my delivery list

We have exploration success and good exploration prospects, so this is all coming now, and we need to channel this in the right way in order to get sustained growth.

Q: A big part of the strategy of those past five years has been unconventional resources: gas-to-liquids, oil sands and so. I was reading a note from an analyst [Neil McMahon at Sanford Bernstein] who was saying, with hindsight, perhaps it would have been better to put the money into exploration for conventional oil and gas. Part of the argument is that the Pearl GTL plant is fantastic as an engineering feat, and will be a commercial success, but it’s a one-off. No one is going to build another GTL plant of that size, for the foreseeable future certainly, and so there’s a tremendous amount of knowledge you have acquired that cannot be replicated in other places, and so is valueless. Is there anything in that?

A: I think I have a slightly different look at unconventionals. I think what is called unconventional gas, tight gas in the US: that for me is pretty much normal gas. GTL for me is nothing else than taking upstream gas and putting it into a refinery; for me it’s not that unconventional. That’s just the way I look at it. Then I come to what I call the real unconventionals, which are oil sands and the real heavy oil, where we have a lot of prospects that are not yet developed; we’re doing some piloting.

Now, if you take that, we are at the moment around 3 per cent is our exposure to unconventionals from a production point of view. If the 100,000 [barrels per day] comes on stream now this year [from the expansion of the Athabasca Oil Sands Project in Canada], then we go to our share, of [about] 160,000. Now that’s maybe per cent, so we’re [still] talking a very small number. We have clearly said that going forward the way we look at those unconventionals, we look at them as being developed but at a much slower pace. Because we have restructured our portfolio in such a way that we are no longer depending that much on growth in unconventionals, what I call unconventionals – and also Nigeria goes into the same category – we are actually much better positioned now in what I call the more conventional space. So our growth comes out of the more conventional space

Now GTL. GTL will give us $4 billion at [an oil price of] $70 [per barrel] every year. We paid close to $18-$19bn, that’s fine. I think it’s a tremendous cash-flow machine going forward and I’m very pleased with that. Great engineering. Can you replicate it? You need certain conditions to do that. We want to start-up first and then look at the possibilities after that. The natural one to do would be debottlenecking and train three in Qatar. It’s all there, it’s all foreseen like that, but we will take that decision when we come to it. Do we build it somewhere else? It depends on the outlook for gas prices, e3t cetera, how we look at that. There are obviously clear possibilities. Is it something you can replicate like you replicate LNG [liquefied natural gas] plants? No, that’s quite clear. But I think this money is well spent, and actually gives us a great return. Even if it’s a one-off, then it’s a one-off. That’s fine, but I take the 4 billion every year.

Q: How would debottlenecking and train three work?

A: Debottlenecking would be for what we have, train one and two, and then there is also the possibility to build a train three, because you know Pearl has two GTL trains, each one 70,000 barrels. It gives you 140, so you could then build a third train to it. The land is reserved and it’s been built so that that tie-in can be made, but there is also most probably the possibility to debottleneck the two trains first. It depends on a lot of things, but that’s one and then maybe a third train. But, at the moment, Qatar has a moratorium on gas field development. It’s not up to us to say we do that, it’s more to the Qataris at one stage to say they open that up again and what they want to do with the gas. But technically there are these possibilities.

Q: You say you think it’s money well spent. Wouldn’t it have been better spent on exploration?

A: I think it’s not an “or” question. This is an “and” question. What we have done over the last few years, we have increased our acreage acquisition tremendously and we are now spending the money on the exploration, and we’ll give you an update later in the first quarter on how 2009 was as an exploration year. So I think I’m pleased with the way exploration has come along. We have quite significant exploration potential now. We do spend money on exploration and we do spend money on Pearl; we have made it always very clear. In the last few years I haven’t seen that many acquisition targets in the market at prices which would match either the GTL or the exploration business model. We have stocked up a lot and we have a tremendous number of prospects on the exploration side and we’re making good progress on Alaska, for example. So we’re slowly getting there, and this has great prospects for us. Now, this is oil and gas so this is pretty conventional again.

Q: Jeroen van der Veer used to use the figure of 15 per cent of production coming from unconventionals by 2015. Do you still stand by that?

A: As I have said, I have great difficulties with that because GTL is simple gas upstream; it has nothing to do with unconventionals. Now, also at the time we talked about having the potential of expanding Alaska to 700,000 [barrels per day output], from the 255 after the expansion, the first one. But, that, over the last two to three years, given the cost development in the Alberta region, we have clearly scaled down.

Whilst we have the potential to do so, we are now talking about debottlenecking, and debottlenecking means 10,000 barrels [per day] here and there, and you can do a few of those before you then need to go into another expansion. So in that sense, when you talk purely oil sands, you will not get to the 15 per cent you are mentioning, and that’s the way I look at it. Clearly we have had a faster pace on heavy oil, oil sands developments in the years ‘04, ‘05, and ‘06, ‘07 maybe even, but over the last two years and certainly over the last six to eight months I’ve taken the pace out of that because we have enough other growth opportunities.

Q: So what are the priorities for that growth, as you say, beyond 2012-13?

A: In the [strategy] update in Qatar [in 2009], we have given some examples of that. I don’t want to go too much into the details because we have got a March strategy presentation coming up and that’s really where we will open up on that further on how I see these phases going forward. But if you go to the Qatar update area, you’ll find Mars B, which is the Gulf [of Mexico]. So in the Gulf we have quite a few opportunities. In North American gas we have opportunities. We are full of opportunities in Australia. We have Kazakhstan coming, various phases there, and we have there also Pearls. It’s nothing to do with the Qatar one [Pearl GTL], but there is an exploration development or find in Kazakhstan which is called Pearls, that was also mentioned in Qatar. So we have all these prospects, so that’s going to be the next wave of development.

Q: And all of those are conventional resources?

A: It’s all conventional. There’s nothing unconventional.

Q: Why is that? Is that because your exploration is more effective now than it was ten years ago? There was a perception that in 2004 one of the reasons why the reserves scandal happened was that exploration had not been as successful as the company wanted it to be. That was then also seen as the reason why Jeroen van der Veer, when he took over that year, was very interested in pursuing the oil sands.

A: Yes. Obviously we had to, in order to generate growth, we had to work with what we had. But, at the same time, we pushed the exploration strategy. We were the first ones in the market actually to let that [budget] go up to $2bn-$3bn per year. If you compare that to the $1bn or even less than a billion some ten years ago, that’s the kind of magnitude you have to see.

Q: Although, given how much costs have risen in that period, that might not buy that much more actual activity.

A: Yes, I know, but you can also count it in how many wells [are drilled]. No: there has been a significant step up in activities, let’s put it this way. I think if you compare today to ten years ago in exploration, back then, apart from driving our capital down during the low oil price period, which we all know strategically was not a wise move to do, we also had a strategy in exploration which was really asset-driven, around our assets which we had there. It was optimised in a very fragmented way. What Malcolm [Brinded] has done since 2004-05, he brought the global exploration plan together and really increased the risks which we are taking, so we are taking fewer but bigger, and also it was optimised on a global basis and not on a regional, local asset basis, where we will do exploration.

That meant we have actually invested a lot in new acreage, which we are now doing the work on, and it meant really that we were optimising the exploration strategy on a global basis rather than on a local basis. So these were the big changes made. Because the first one was not very successful in the late 90s, which was the problem for us, that quite clearly we had to step up in order to actually have a big enough funnel of exploration finds to deliver us the growth going forward. And this is still the cheapest way. Finding costs are $2-$3 [per barrel], and then you have development costs of maybe today $7-$10. It depends, if it’s deep water it’s obviously higher, but on average it’s still much cheaper than buying on Wall Street.

Q: Or, indeed, much cheaper than opening a new oil sands project in Canada.

A: Yes, but on the other side you also have to say new oil sands projects have no decline. You put the money in once and then you operate. If you are in the Gulf of Mexico, in the North Sea, you need follow-on capital spending also. So you can achieve good returns at high oil prices with oil sands, no doubt, but it needs up-front money. It is very capital intensive.

Q: Are you taking a different oil price view now from what you would’ve taken two or three years ago?

A: No, they are the same. [We did not change our view] in the high period, and we also kept our nerves when it was going down to $35. So two extremes, $147 and $35, did not actually make us change the view. We are rather conservative in that sense.

Q: What oil price do you need for cash break-even? Is there a number?

A: No, we don’t publish that because the problem with this cash break-even is, and we talked about it last time as well, you need to take an assumption of the gas price, the oil price, the refining price. I mean, you need to think about foreign exchange as well, and so I’m just hesitant to put these numbers out because it will really depend. You can have a rather good oil price, a high oil price, but your refining margin is just absolutely nowhere. Now, that oil price has nothing to do with your cash break-even any more, because other things are driving it. Or the gas price: the typical historical ratio between gas and oil, if that is out of whack, like it has been over the last few months, and if you are more gas-driven, it just changes it. So I’d rather prefer to leave that. It generates me more headache than anything else.

Q: To be clear then about the point you’re making about conventional resources, they are the cheapest, you say. Cheapest compared to what?

A: To buying it.

Q: To buying it through M&A?

A: Through M&A or getting a late entry into something. I think going back to the DNA of a company, our DNA is to actually develop things, so we are best when we are actually doing it from scratch. We develop it, together with our partners, that’s our way. So we are not a typical M&A company in the sense that you buy in late on. Shell is normally at its best when we can use our R&D and technology and innovation drive to bring barrels into production. We are not shy of taking technical risks because we think we can manage it. It’s one of our strengths, and that’s clearly also behind some of the restructuring, to build on that, and I think that’s how governments and NOCs will select their partners in the long-term.

Q: You mention M&A. Ten years ago or so, there was a huge wave of restructuring, and since then there’s been a fair amount of deal-making across the industry, which Shell has essentially stayed out of. Do you think that was a mistake, and if so, was it one that can be corrected, or is it something in the DNA of the company that means you’re just not really deal-makers?

A: Yes, I think you talked about maybe the disadvantage an economist has in the CEO job. I would say not missing an M&A deal is most probably the advantage of having an economist, a financial person in this chair. I’m a portfolio person. I look at this constantly because you need to challenge your internal capabilities and deliveries against what you can get in the market, so I think I can put you at rest on that score. We look at that on a permanent basis. So that’s one.

Going historically back, yes, we did miss the late 90s. Now, you can find the perfect excuse because we were disadvantaged with the dual parent company structures: we were not competitive on the share side because we would not have qualified in the same way in the States like Exxon, Mobil or BP when they bought their stuff, we would not have had the tax benefits with our dual structure, so there was a clear problem there.

But also, I think there was also a kind of clear company philosophy that we are strong enough to do it on our own and I think that is no longer in the company. Jeroen [van der Veer] worked on that, clearly I continue that work, and we have done a few things. Everybody was thinking about why the headquarters are buying some North American, Canadian tight gas two years ago [paying C$5.9bn for Duvernay Oil]. Now when we see what Exxon has just done, [buying XTO for $41bn] most probably it was quite a good, wise move which we did earlier. So we like these kinds of things when we pick things early. It doesn’t need to be the big stuff. It can be smaller stuff. But we go into these things and I think that suits us quite well.

Q: People have kept predicting that we will have another wave of M&A across the oil and gas industry. It hasn’t happened yet. Do you think now that moment has passed, or is it still something which is going to happen?

A: Personally, I think you have to differentiate between the kind of late ‘90s stuff – big industry consolidation – and medium, smaller-size acquisitions. I think the second category will still happen, because that happens on a regular basis. Most probably everybody has missed the point where those companies were financially in their weakest position, but still then the valuations were not cheap, not too cheap I have to say. I think the bigger industrial consolidation, like in the late ‘90s, I do struggle to see that that will happen.

Q: Because?

A: Because of the synergies you can achieve in order to justify the premium which you need to pay. These mergers of equals, they are nice on paper, but I struggle to see that they will happen in a successful way. Then you have premiums involved in [takeovers]. I mean, market caps are big at this stage; just calculate a 20-30 per cent premium on $200bn. These are a lot of bucks you have to save in synergies. If you don’t have a strategic hole somewhere which you want to fill, I do struggle to see it.

Q: The deals of the late ‘90s now look sensible, good value because people were able to pick up assets at what have turned out to be extremely cheap prices?

A: Yes, or like in the Exxon case with Mobil; it filled the gas hole which they had. That’s why I say strategically it made sense. It may make sense if you have a strategic problem somewhere.

Q: Which you could also say has been the case in the Exxon XTO deal? Again, they were weak in unconventional gas.

A: Yes, absolutely. They were not in unconventional gas, or North American gas in general, so they had to fill it, which is fine. You can do that. In hindsight, these deals look like very good deals. [But] if you take the general theory, with hindsight, those who buy normally lose. I can give you 25 studies from Howard and from everywhere. It’s the shareholders of the old ones who win and the shareholders of the new o me nes who lose. That’s the other theory against it.

So I’m very careful on that. It really needs to make sense.

Q: Tell me about Iraq. Coming through the lobby downstairs there’s a big headline saying success for Shell in Iraq. What kind of success is it? I mean, you’ve got the contract, but it is presumably not a very lucrative contract. You’re not going to make a great deal of money.

A: It’s a good IRR [internal rate of return] project, and from that point of view I’m pleased. It generates NPV [net present value], but I think the key issue here is you are in one of the biggest resource holder countries and you are operating in it. That’s the key thing you have to have for the longer term.

Q: Is the real opportunity going to be the exploration and development of new fields?

A: Yes, and gas. We are working on gas as well.

Q: Progress seems to have been slow on your gas deal in Iraq. Why the delay?

A: Yes, quite clearly the oil tenders have come into the middle of it so it is slower. I mean, they were also occupied with other stuff. But now how the elections are playing, I don’t know. We are negotiating. The pilot projects which we have been doing – because we have been doing stuff – they are very positive.

Q: The gas would be for the domestic market and LNG, is that right? Could you also pipe gas north?

A: Well, I think it’s the domestic gas and the LNG which is interesting, mainly in the south obviously, because that’s where the major development now will happen. You have got a lot of associated gas [produced as a by-product of oil extraction]. I mean, the amount they are flaring at the moment is just mind-boggling, so it makes sense either from a business or from an environmental point of view.

Q: But even so, it made slow progress.

A: Yes, which shows that the politics in all of this should not be underestimated.

Q: So what’s the next milestone?

A: At one stage, once we have the agreement it needs to go through parliament or through the commission that they have there.
That is one of the issues, because there is a clear process for oil. There’s actually no process for gas. Who can sign up? If you are close to elections, you may not find everybody being so happy to take risks on this.
We are making progress, but it would be too early to say it will go through. We’re working on it.

Q: In Alaska, you’ve famously paid big prices for exploration acreage…

A: $2.1 billion.

Q: But exploration there has been delayed by legal challenges. Now does it look like everything’s falling into place? You’ve been getting various permits and approvals.

A: Yes.

Q: So you’re on course to drill this coming summer?

A: Yes, but I think you can bet on some legal challenges in the middle. I’ll celebrate once we are there, but I think at this stage there’s still one outstanding permit, but that is now in the public hearing kind of phase as well, which is the air permit. So I would assume we get all of them, and then we are subject to legal challenges, but I think I’m quite hopeful that we can actually drill. I was very pleased with the press release from the administration, from Ken Salazar [US interior secretary] himself that they will watch us, but they see Shell as the company that can actually develop these things in Alaska, which I think you can’t ask for more as a kind of recognition that we have listened to the local communities, their concerns, the way we have structured our drilling program, et cetera. So I think it was good progress, yes.

I have to say the upstream Americas, the new organisation, has done an extremely good job there. So under the leadership of Marvin [Odum], successfully working with the administration, with everybody involved, which is good. There’s good tangible results out of having the focus really on that area and having it at the top level of the company as well because we never had the US so dominant at the Executive Committee level like we have now, and it’s one of our biggest assets which we have in the group.

I think if you would take both sides, upstream and downstream, [the US] must be 35 per cent [of Shell's assets] by now, and huge growth potential with gas in the Gulf of Mexico and Alaska. So I’ve always said strategically we are now US or North American focused and we are Australian focused, so two key OECD countries with a price upside. That was part of the big strategic moves which we have done over the last two or three years now.

Q: In Australia, are you sceptical about coal bed methane? You have seemed to prioritise the offshore gas on the north-west shelf.

A: No, I wouldn’t describe it that way. I think the way I describe it normally is: quite clearly we are a global leader in LNG, and that’s where we are strong in Australia and that’s our prime domain, that’s what we are moving. On the coal bed methane, at Shell normally if we don’t have the skills and we need to build the skills up, then we do this gradually. That’s the way we started in the early 2000s to build up tight gas knowledge in North America and once we were there in ‘08, we had the knowledge, we could operate, we started to buy much more acreage. So I think I look at CBM in a very similar way. We have the rights to go international with Arrow [Shell's Australian joint venture partner]. They have the knowledge on the upstream; we have the mid and the downstream and that’s how we start to learn the skills, et cetera. Depending on how this all works, you will then see how we develop strategically forward.

Q: Turning to Nigeria, there was a story just before Christmas saying that there were $5bn worth of assets up for sale. Is that true?

A: I’ve read it as well. No comments on that. What I said in general, we are no longer depending on Nigeria for growth, so we are managing Nigeria much more as a portfolio where we are optimising what we have. So we have hardly any projects in our growth prospects which we have made public. There is a lot to actually develop if you want to do so, but the circumstances are not right.

Q: That’s true on both onshore and offshore?

A: Yes, it’s both. Yes, we have the exploration success on offshore, which was very good quite clearly, but we have a lot of reserves not booked, but there is a lot of resource potential, I think that’s the right description, onshore as well. But we have said given the fact that we are no longer depending on the growth of Nigeria, we will always look at that portfolio like we look at all the other portfolios, and if there are opportunities, we may consider it. So I think that’s as far as I go, and the rest is no comment. I mean, even the Nigerians were surprised about some of these press statements, which came out of Nigeria, by the way, but anyway….

Q: So it’s absolutely not impossible that if a buyer came in with the right price and said we’d like to take these Nigerian assets off you, you would sell?

A: That’s why I said I’m an economist in that sense. I’m portfolio value driven, and if it’s Nigeria, if it’s Brazil, if it’s the UK, whatever, if the price is right and I think someone else can pay more and can make more value out of it than we can, why should I not take it? But that is not a Nigerian issue; that’s a general issue, the way we look at portfolios.

Q: But it is particularly relevant to Nigeria because it’s not a key source of growth. The other places, you wouldn’t sell out of Alaska, let’s say, because that’s something you see as a strategic priority.

A: Probably not at this stage, no. I get your point quite clearly that Nigeria is a special place in that sense and one does look very closely at that. But I will not go further.

Q: Another mature region, the North Sea: will you sell more North Sea assets?

A: There are late life assets which others can operate better, and we have had some of these transactions, but we’re also investing in the North Sea. I take now the North Sea, not just the UK [but including Norway], and we are very active and investing there. Just before Christmas we did a deal which involved the North Sea, so we are active, but we are not active only in selling, but also in investing. Again, it goes back; look at your strengths, look at your DNA, look at the way you apply your technologies. If you are the best operator of an asset, then keep on doing it and make the best out of it. If not, then don’t be shy to do it differently, and that’s what we have done with some of the North Sea assets.

Q: So for a lot of North Sea assets you are no longer the best operator?

A: I wouldn’t say not a lot, but there are assets where most probably others are at least as good as we are and maybe some a little bit better in some areas.

Q: One final question about Copenhagen. Given three or four weeks to reflect on it, where do you think we now are in terms of carbon policy and what that means for the energy industry? I mean, given the lack of clarity out of what really happened in Copenhagen, and what it means, does that mean that for the industry it’s business as usual, nothing’s really changed, or does it cast a doubt over future control of carbon?

A: I wouldn’t say it has changed too much. I think we are in the same boat at the moment. It hasn’t stopped us doing business in 2009. It will not stop us doing business in 2010. But quite clearly wherever we can, we are trying to push forward. I think it’s about time to stop discussing and arguing. We had a very important milestone with Copenhagen. The outcome may be not to the entire liking on my side, but I didn’t have the expectation that we’d get a firm legal binding contract anyway. So now let’s go and work it and hopefully we can work it in bigger geographies than just in isolated geographies. I think it’s now really the detailed work and the businesses need to participate in that and that’s the way we push it.

Q: What about your strategy for carbon capture, or biofuels? Will that change?

A: No, it doesn’t change the strategy, and I’m still a big advocator of having a carbon price. We always have said that’s clearly what we want, because that really gives us clarity on the strategy. But does it slow us down in investment? No, because we have taken carbon pricing into our investment proposals for a long time now. But I think it will be clearer over the next few months and I think we can talk more about that, but in my opinion this is now about, let’s work on it and stop talking.

Q: And on that note we should stop talking. Thank you very much.

A: Thank you

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