Departing Shell boss says industry will withstand time
Shell CEO Jeroen van der Veer is credited with raising the company from the slump it was in five years ago. But as he leaves his post today, Van der Veer and Shell find themselves under fire again.
Jeroen van der Veer, outgoing CEO of Shell, does the numbers. There are currently around one billion cars on the planet; that number is expected to double by 2050. What will all those cars run on? Electricity? Bio fuel? "Those will have their share of the market, but they won't be able to meet the huge demand," says Van der Veer. He has bad news for anyone who thought the end of the powerful oil and gas business was in sight: "Our industry will be around for at least another century."
The 62-year old engineer and economist has worked for Shell his whole life, the last five of which at the top. When he retires on July 1 - two years later than planned - it will not be to a life of idleness. Van der Veer is already a non-executive director at Unilever, and he will be joining the supervisory boards of ING, Philips and his own Shell. It will make him one of the most influential people in Dutch business today.
Shareholder revolt
But Van der Veer's departure is surrounded by controversy: Shell has recently announced that it is putting all its investments in solar and wind energy on hold. Van der Veer himself has come under fire for the bonuses he and 15,000 other Shell managers received despite controversy over whether or not the company had met its goals. For the first time in Shell's history, its shareholders have voiced their public disapproval of the company's bonus policy. Van der Veer doesn't want to comment beyond: "It is clear that people are concerned about bonuses, and a good company should take that into account."
Shell was also in the news because of a US lawsuit accusing Shell of
complicity in the execution of Ken Saro Wiwa, the Nigerian rights activist.
Shell has always denied responsibility, but it ended up settling out of
court for 11 million euros.
Jeroen van der Veer was born in Utrecht in 1947. He studied engineering at the university of Delft and economics at the university of Rotterdam.
He started with Shell in 1971 and remained there for the next 38 years. He has worked for the company in Britain, Curaçao, Africa and the Middle East.
From 1992 until 1995 he was CEO of Shell Netherlands, after which he went to Shell Chemicals in the US. He was appointed CEO of Shell in 2004.
Van der Veer is retiring from Shell on July 1, 2009.
He has been asked to join the supervisory boards at ING, Philips and Shell. He is already on the advisory board at Unilever.
Van der Veer has also been nominated for the board of supervisors of the Concertgebouw, the renowned Amsterdam concert hall. As of October he will serve as president of Platform Bèta Techniek, a foundation aiming to ensure sufficient availability of people with a background in scientific or technical education.
Van der Veer is married and has three daughters.
It won't be the last lawsuit against Shell either. It is par for the course in
the oil and gas business. Oil brings out the best and the worst in man,
Pulitzer-winning author Daniel Yegrin wrote in The Prize (1991). "Creativity,
dedication, entrepreneurship, talent and technological innovation have
always gone hand in hand with greed, corruption, blind political ambition
and brute force."
Environment
Van der Veer: "A company like Shell cannot do without large-scale
infrastructure. This will always have an impact on the environment and the
people living in the area. It is not the same as building a radio
manufacturing plant. People will accept us only if they see that we aim to
operate in harmony with the environment and with them. There has been a
learning curve for us too. When I was the director at Pernis [Europe's
largest refinery, near Rotterdam] we had to modernise the refinery. I sat
down with the environmentalists, and it became an overall success. This
model has become part of our company's way of thinking in the last few years."
Shell changed course drastically under Van der Veer. When he took over from
Philip Watts on March 3, 2004, Shell was in the middle of the reserves
scandal. (Van der Veer: "Ho, ho, the reserves issue, not scandal.")
Shell had grossly exaggerated its oil and gas reserves, and was forced to
cut them by a quarter. The 'issue' led to the resignations of Watts and two
other members of the executive committee. It damaged Shell's image and
forced an important reorganisation on the company.
Van der Veer: "Everybody thought I would be concentrating on nothing but
the reserves issue; instead I immediately raised the budget for research and
development."
Why was that necessary?
"We weren't investing enough. These days if you want to beat the
competition you have to excel in three things. You have to execute all your
projects perfectly. You have to have the best technology because if you can
drill deeper than anyone else, or extract more oil from a field than anyone
else, you are more attractive as a partner. And you have to invest in
large-scale projects.
"At the moment we are building a factory in Qatar that will convert
natural gas into liquids like diesel. It employs 48,000 workers who have to
work in intense heat. The factory is as big as a city. And we can make that
happen in four years' time. Who says Shell is a sluggish company?"
So Shell did not have that technology before?
"In the nineties it was all a matter of fiscal discipline. It had to be
because the oil prices were extremely low at the time. So we concentrated on
commercialising our existing reserves. It was the cheapest solution. It
required less technology than if you're exploring difficult new areas. As a
result we let go of a lot of very experienced people during the nineties. We
thought oil prices would stay low, but we were wrong. When prices started
rising again in 2000, we found ourselves very low on expertise.
Just like in the seventies, rising oil prices made oil-producing countries
like Venezuela and Russia tighten their grip on the oil and gas fields and
industry. As a result, companies like Shell were forced to start exploring
new areas, or "provinces" as Van der Veer calls them. In the
seventies it was the North Sea, the Gulf of Mexico, Alaska. Now it is the
deep seas of Brazil and Nigeria, the icy waters of the Arctic Circle, the
tar sands of Canada. They are technically challenging, which is why the oil
companies are investing so heavily in new technology and the people who can
develop it.
Has Shell put itself at a competitive disadvantage with all those cuts
during the nineties?
"I think we changed course just in time. And don't forget: we were not
the only ones cutting back. Everybody was faced with low oil prices, so
everybody was doing it."
Not everybody agrees. In a recent report, Crédit Suisse bank said Shell has no
choice but to invest heavily - 31 to 32 billion dollars this year, more than
any competitor. If Shell doesn't succeed in raising its reserves and its
production, which has been on the decline since 2002, its share price could
tumble and the company would be ripe for a hostile takeover. It's what
happened to Gulf Oil in the seventies: it was swallowed by Texaco (now
Chevron) because it didn't keep up its reserves.
Van der Veer denies the rumours. "The big projects currently underway
will result in growth." Crédit Suisse agrees that there will be growth
in 2010-2012, but it expects Shell to fall under the 2008 level again by
2015.
Isn't it essential for Shell to explore new oil and gas fields to get
the reserves and production up again?
"Yes and no. We had enough reserves and we still do. We just didn't
manage them very well. It is true that we need to look for new 'provinces'.
But the same goes for our competition. You can see it coming. The existing
fields are yielding less and less oil and gas. Look at the Groningen field
in the Netherlands; it has yielded 60 percent so far. So there is some time
left, but already you need to start looking for new fields. And I want
everybody at Shell to think: we have to win. We can't leave it to the other
companies.
"We have invested heavily in Qatar, in the tar sands in Canada, on
Sachalin in the Russian Far East, and in ultradeep waters in the Gulf of
Mexico. We're thinking ahead too. We have bought 2 billion dollars worth of
concessions in the Chukhi Sea near Alaska. We know that these concessions
will not become profitable until my successor's successor is in place."
Today bidding starts for oil and gas concessions in Iraq. What are your
expectations?
"I can't say much about that. It's a two-day auction."
You've said earlier that you're interested in the large Akkas field in
the northwest of Iraq. Are you planning to export the gas from that field?
"I'm not going to say anything about that now."
Could that gas be used to fill the `politically sensitive Nabucco
pipeline, making Europe less dependent on Russia?
"Again, we're still in the bidding phase so I can't comment."
You have been praised for your leadership qualities. What are they?
"You have to give direction, with great clarity. Clearly say where you
want to go. No endless recycling, but getting things done. And we need to
move at a fast pace. The biggest danger is that our pace is just one step
slower than that of the competition. Then we're done for. It is a problem
for European companies; slowness is part of our culture."
After the reserves issue, Shell's share price collapsed. Was there ever
a chance of a takeover?
"There has been much speculation. Whether it was ever serious I have no
way of knowing."
No one ever came to see you with an offer?
"No one came forward and said: we want to make an offer. But if you think
back to those days... You don't know how much damage has been done to your
reputation. You're worried about being able to come up with new projects.
You don't know how much lower you can go. You can look critically at your
share price. And there is common sense. You know that if the price goes down
far enough it will give other people ideas. There were risks. In the end the
only thing you can do is to have a clear agenda for the future. And that's
what we did."
Jeroen van der Veer
Gerelateerde artikelen: