OUR GREAT MINDS

    by Tina Olivero

    Ben van Beurden Interview (Shell Chief)

    Van Beurden and his colleagues might well have been in need of a drink after the gruelling nine-and-a-half month takeover campaign.

    While that day’s vote by BG shareholders – waved through with more than 99 percent approval – had never been a concern, van Beurden had faced a tough battle to convince his own shareholders that he was not overpaying for BG as the oil price plunged. When Shell investors had finally voted the day before, some 17 percent still did not back the deal. Van Beurden says the takeover taught him “how tough it is to get it right.”

    “Although I think I was mentally and otherwise very well prepared for the ride, it was quite a ride.”

    On the last Thursday in January, the day Royal Dutch Shell’s £35bn takeover of BG Group got the final seal of approval from BG shareholders, Ben van Beurden was not planning a celebration.

    Shell’s chief executive was instead preparing to get on with the detailed work of integrating the two companies: some 200 senior staff from Shell and BG had been assembled in The Hague, ready to spend Friday and the weekend working out what would happen when one of the biggest deals in history finally completed.

    But with the full top teams from both sides brought together for the first time, the occasion developed something of a party atmosphere. “It almost felt like you were getting together for a big wedding and this was the night before, where both sides of the families would meet and somehow sort of compare notes and talk about the future,” van Beurden, 58, recalls.

    “So while it wasn’t meant to be a celebration, actually it turned into a celebration of both what we had done together but also what we were going to do in the future. There was champagne, food and a lot of good talk.”

    Van Beurden and his colleagues might well have been in need of a drink after the gruelling nine-and-a-half month takeover campaign.

    While that day’s vote by BG shareholders – waved through with more than 99 percent approval – had never been a concern, van Beurden had faced a tough battle to convince his own shareholders that he was not overpaying for BG as the oil price plunged. When Shell investors had finally voted the day before, some 17 percent still did not back the deal. Van Beurden says the takeover taught him “how tough it is to get it right”.

    “Although I think I was mentally and otherwise very well prepared for the ride, it was quite a ride.”

    With hindsight, would he have done anything differently? Van Beurden, normally ready with a well-rehearsed answer, hesitates for some 10 seconds. “I don’t think so, actually,” he eventually responds. “It was a very intense period that’s absolutely true. I think it ended well. Now that we have had a chance to understand in more detail what exactly we acquired, we have only on balance some positive surprises. What we had hoped to find, we have found. We have found no real negatives in there. So in that sense, absolutely no regrets.”

    Van Beurden, a Shell lifer who had been at the helm just 15 months when he launched the takeover bid, smiles as he adds: “The only regret you could have is: why didn’t we do it 10 years ago? But that’s a different story, that’s not for me.”

    If the courtship leading up to the oil industry wedding of the century was controversial, Shell now seems to be enjoying a honeymoon period. The “positive surprises” resulted in it last month upgrading its view of “synergies” from the deal to $4.5bn from $3.5bn, which was already $1bn above the original estimate.

    Although investors may have been cheered, those synergies have equated to devastating job cuts for staff. “There is a correlation, because of course staff costs are roughly 40 percent of our operating costs,” van Beurden says.

    In May, Shell announced a further 2,200 job losses, added to the 2,800 originally expected from the deal. These came on top of the 7,500 cuts made as Shell slashed costs to cope with the oil price fall; from a combined Shell-BG head count of almost 100,000, at least one in eight is going.

    Van Beurden offers little comfort when asked if there could be more to come. “There could be, yeah, absolutely. Much will depend on how the environment will continue to develop.”

    He adds: “There will always be also, in the absence of large deals, the continuous improvement drive which may result in jobs either not being required any more, or going to different parts of the globe, or general efficiencies or shutting things down. You can never say that you are done with staff reductions.”

    As well as shedding jobs and slashing spending to beneath a cap of $30bn a year, Shell has also announced a $30bn divestment programme that could see it exit up to 10 “mature” basins. Inevitably this has raised fears about Shell’s future in the North Sea, where it has some 65 interests and operates more than 30 platforms.

    “We will not leave the UK altogether,” van Beurden pledges. He highlights the company’s current $4bn North Sea investment programme, but also admits almost all of this relates to two major new projects west of Shetland. Most of its other assets are much older. With Shell seeking to retain “high quality assets that have longevity”, is it looking to exit everything else?

    “No, not necessarily all of it,” van Beurden says. “But we will be looking again at what is the set of assets that we want to hold on to, where do we believe we will produce it right to end of life, and where do we have a better option to sell it to a better owner of that asset,” he says.

    “It is a normal part of the life cycle in our industry. Everything gets to the point of maturity where the future value in it doesn’t warrant the future capital that you need to harvest that value, or where it makes more sense to have that harvesting being done by somebody else.”

    Van Beurden says he believes the oil price volatility that has rocked the industry will continue, perhaps for “a few years to come”, but is bullish that, in the longer term, prices will rise.

    “The fundamentals I think are pretty clear cut, that supply and demand are getting back into balance,” he says. “In my mind there is more upward pressure on the price than there will be downward pressure in the long run – but how we are going to get to a higher oil price level will be a bumpy ride, and at what level it will settle is very, very hard to predict.”

    With volatile prices and the BG merger already to contend with, it is perhaps little wonder that van Beurden was opposed to Brexit and the added uncertainty it would bring.

    He recalls waking at home in the Netherlands on the morning of June 24 for his usual 6 am workout and switching on his phone to see a news alert. It was 5 am in the UK and the result was just becoming clear. Was he surprised? “I must admit in the lead up to it I had a very strong feeling that this could well happen,” he says. “So in a way, no, I wasn’t terribly surprised when I saw the first news when I woke up, but I had hoped for a different outcome so it was a sense of disappointment.”

    In a speech delivered an hour before our interview, van Beurden made clear that he hopes free trade and free movement of people between Britain and the EU will be retained.

    If they are not, he says, while it wouldn’t “fundamentally impact” Shell’s operations, it would “give complications that would be unwelcome”. He is reticent to comment on the wider political implications, but foresees “a certain degree of reflection of, how did we get here, what needs to happen next.”

    “If you want to look for a silver lining, you would expect there to be a positive aspect in that reflection as well,” he says.

    Where van Beurden is more outspoken politically is on the question of how the world can attempt to meet the agreed UN goal of limiting global warming to less than 2C, which would require a drastic reduction in carbon emissions.

    Our interview takes place at the Olympic Park in Stratford, where Shell is holding a four-day event encouraging everyone from experts to school kids to consider options for the UK’s energy future. l has a “responsibility” to “help tackle” the energy challenge.

    An oil company discussing how to save the planet is bound to raise hackles. Alert to the risk of accusations of greenwashing, van Beurden freely admits that Shell will only go green “when it makes business sense.”

    “You cannot expect us to act against our economic interest,” he says. “I cannot invest in loss-making propositions or propositions that are 100pc dependent on election outcomes, on whether we will continue to receive government support.”

    Shell does have a “modest” renewable energy business with small-scale investments in solar, wind, and biofuels. But while it has identified this as a potential growth area, van Beurden won’t put any number or “fanciful targets” on its potential scale.

    He contrasts Shell’s annual $30bn investment – overwhelmingly in oil and gas – with what he says is the total $5bn annual investment of the top 10 solar companies. “These top 10 solar companies don’t make any profit, have never paid any cent of dividend in their history. So I cannot invest $15-20bn in solar and wind, which is quite often what people somehow hope us to do, and also still at same time pay a dividend. We have to find ways to make these business models work.”

    Shell’s core long-standing policy demand is for carbon taxes to drive the switch to cleaner fuels. “Putting a price on carbon, a significant price on carbon, is one of the most important things governments can do,” he says.

    Cutting emissions sufficiently to curb warming will require “very very profound” changes to the energy system, but van Beurden insists Shell believes it is “do-able.”

    “If I say ‘it’s unlikely’, quite often we get characterised as being in denial, or almost wishing that it would not come about,” he says. “I would much rather say, well, it’s going to be very, very tough to achieve it and therefore we need to act, sooner rather than later, and we need to act more profoundly than what we are doing. Setting targets is just not good enough.”

    He dismisses as a “red herring” the theory of a “carbon bubble”: the idea that fossil fuel companies like Shell are themselves overvalued if the targets are to be met, because their oil and gas reserves could become “unburnable.”

    “Even in a 2C world, the world will still need significant investments of oil and gas. And there will be new business models that we can participate in. I am convinced we can thrive in that world as well,” he says.

    “So we are not in denial, we are not afraid of that either. But what I am concerned about is that the level and intent of policy action is just not sufficient, and that somehow there is a notion out there that there is a simple solution to this.

    “It will be difficult, it will be complex, and the sooner we start with real action, the better it will be.”

     

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