The departure of Peter Voser from Shell may be entirely voluntary and personal but the consequential change of leadership raises some very big issues for Shell’s board and the company’s investors.
Those who don’t know the big energy companies from the inside can all too easily imagine that life at the top is soft and easy. Corporate jets, lavish offices, great salaries and even greater bonuses. All true. But corporate life at that level is still a 24:7 existence made up of endless travel, hard negotiations with unpleasant people and unrelenting pressure from investors who are never satisfied. Within the company there are barons to be managed.
Externally there are always, even in the best of companies, running sores, often dating back decades and inherently insoluble. In Shell’s case the running sore is Nigeria. Then there are the mistakes, also inevitable in any company which takes risks. Shell’s mistake in recent years has been its ill fated adventure in Canada and the Arctic. Some put the total cost at $10bn and the ability to write off that amount without blinking is further evidence of just how strong the majors still are. The reality was that Shell was not Arctic-ready. Local managers were allowed too much freedom. The mistakes will make it difficult for the Shell board to appoint Marvin Odum – the man directly responsible for the US operations – as the next chief executive.
None of these problems was caused by Peter Voser. But as CEO you are responsible for everything. I can understand why even at the early age of 54 he is ready for a change of lifestyle, and I wish him well. The issue for Shell is whether it should now change its strategy as well as its leader. There is a very good case for doing so. Read more
Ukraine deal confirms Shell's commitment to shale gas. Getty Images.
Shell’s decision to invest $10bn in the development of shale gas in Ukraine is certainly a significant move.
First, it confirms Shell’s commitment to shale and the company’s determination to override environmental objections to the technology of fracking. Shell believes shale can be developed safely and cleanly enough to avoid damaging either the environment or the company’s reputation. This move will help to confirm shale’s arrival in the mainstream of the energy market. Read more
Shell's drilling barge the Kulluk. Getty Images
There are two important lessons from the mounting problems facing Shell as a result of the series of accidents that have afflicted its drilling programme in the Arctic.
The first is that major companies must have the capacity to call a halt and to break the inexorable internal momentum that so often makes it impossible to stop projects once they have started. The ability to reconsider is a great sign of strength not weakness.
The second is that a company such as Shell which prides itself (rightly) on its environmental performance is only as good as its weakest contractor. Read more
The abandonment by Shell of this years drilling plans in the Arctic is hardly a surprise. The project is complex and has run into one technical problem after another. Shell is rightly prudent when it comes to the risks involved in an area which is both environmentally sensitive and under the intense scrutiny of the world’s media not to mention a set of lobby groups energised by the prospect of taking on one of the world biggest companies.
There will now be another delay adding to the five years and several billions of dollars the company has already devoted to the project.
Shell has decided to take on the environmental lobby and to prove that the Arctic can be drilled and developed safely. That is a big bold move in itself, but the real problem for the Shell board and it’s shareholders – which include most pension funds in the UK and the US – is that the economics of development make sense only if one assumes ever higher oil prices.
Shell has never published a detailed analysis of the economics of Arctic development. The commonly quoted numbers for the resources which could be found – 26bn barrels of oil and 130tn cubic feet of gas – suggest a big prize. But what is the cost of development? And what oil or gas price in the US or the world market is necessary to make the project profitmaking?