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The Observer: Shell has Ollila; now what it needs is oil

The Observer: Shell has Ollila; now what it needs is oil

Sunday 7 August 2005

Oliver Morgan

Sunday August 7, 2005

Congratulations to Royal Dutch Shell on finding a true industrial heavyweight to be its next chairman. Last week’s appointment of Nokia’s Jorma Ollila went down well among Shell followers, and the mishap-prone Anglo-Dutch behemoth even got some rather favourable press. A round of large advocaats for the board, then? Not so fast, barman.

Ollila may turn out to be the best man for the job, but he starts out as the best man to fit a set of criteria so stringent as to have been raising eyebrows in the City for months. That the next chairman of the recently unified ‘new Shell’ was not to be a Brit, a Dutchman or an American for fear of inflaming national rivalries suggested the company had not consigned its notoriously political culture to the past.

His reputation on the board will count for little outside the company when he starts next summer. As one hardened oilman observed last week: ‘Fancy ringtones don’t find you oil and gas.’ And there is the problem, or the first of them.

Ollilo made his name transforming Nokia from a wellington-boot-to-electronics conglomerate into the world’s leading maker of mobile phones. But Shell is not a company in need of that kind of transformation. Having lost a fifth of its reserves in a year, it needs to find some oil, and quickly. It needs to outperform Exxon Mobil and BP by a staggering margin to claw its way back from the bottom of the performance tables. And it has to do so at a time when finding it is getting more and more difficult: multinationals remain locked out of countries with nationalised industries, where most future growth will come; and competition in the areas that remain gets fiercer every year.

Despite the huge complexity of modern oil and gas projects, cheerleaders say that Ollila’s ability to spot world-changing technologies will give Shell the edge. And they add that none of this matters anyway, because, like Peter Sutherland at BP, he will be playing the non-executive role to Jeroen van der Veer’s Lord Browne.

Fine – except that van der Veer is, on performance so far, no Browne. Having attempted to draw a line under the reserves debacle last autumn, he and exploration and production head Malcolm Brinded had to announce further cuts. Then, having acknowledged the importance of major new developments, Shell then missed out on one in Oman earlier in the year.

Nevertheless, there are signs that Shell will recover at some point in the future, as production developments come on stream around 2010. Ollila may bask in that glory – or even hasten it. But there would have been more certainty if the criteria had not been so narrow. Then Shell might have approached a tough and authentic Texas oilman for a kick-start – the legendary Lee Raymond, for example, who retired from Exxon last week.

http://observer.guardian.co.uk/business/story/0,,1543913,00.html

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