The Royal Dutch/Shell Group of Cos. unveiled plans Oct. 28 to merge its two holding companies after nearly a century apart, a response to a scandal over its downgrading of oil reserves. The company also said it could further reduce its proven oil reserves as it posted third-quarter earnings double those of a year earlier.
Shell said that scrapping its twin-board structure was the best way to eliminate accounting failures that led it to admit in January that it had vastly overestimated reserves, its most precious asset. Since then it has reduced the total of its reserves by 23 percent, or 4.47 billion barrels, and said Oct. 28 it may have to cut estimates by 900 million more.
The proposal to merge Shell Transport & Trading Co Ltd., which holds 40 percent of Royal Dutch/Shell, and Royal Dutch Petroleum Co., which holds 60 percent, was largely welcomed by the market.
Shell shares soared on the London Stock Exchange, hitting a 2004 high of US$8.26 before closing at US$7.97. Royal Dutch shares were up 1.37 percent on the Euronext exchange to $54.61.
Investec analyst Bruce Evers said the shake-up would go “a long way to meet the demands of investors” angered by the reserves crisis, which led to three senior executives being ousted and almost US$150 million in fines imposed by U.S. and British regulators.
Royal Dutch Shell PLC will be new companyUnder the Oct. 28 proposal, the two parent groups, which have been managed as a unit since 1907, will merge and form the supervisory board of the new company, to be named Royal Dutch Shell PLC. The consolidation is expected to take place in the second quarter of 2005, with the new company to be nominally based in London but have its physical headquarters and tax home in The Hague, Netherlands.
“Our proposals will not satisfy everyone in every respect but we firmly believe that we have come up with the best solution possible,” said Chairman Aad Jacobs.
If the deal is approved by stockholders, they will receive shares in the new company on a one-for-one basis. Dividend payments will be shifted to a quarterly basis from their current semiannual frequency.
The current chairman of the Royal Dutch/Shell Group’s board of managers, Jeroen van der Veer, will continue as the new company’s chief executive.
“This is the end of 60:40, we become one company with one share,” Van der Veer said. “There is one set of directors, one chief executive, one person who has to take full accountability.”
Van der Veer said the company’s review of reserves is still not complete, and it may have to downgrade estimates by another 900 million barrels. He said the effort to reach a final number on the reserves adjustment was “not a very simple exercise, as came out today again. But we are determined to get this reserves issue behind us.”
Shell said that definitive figures on the possible shortfall would be provided with annual financial results in early 2005.