Shell CEO tells why its Woodside stake had to go
Ben van Beurden tells how he had to slash Shell’s massive investment in Australia as part of his re-engineering of the global energy giant
ROYAL Dutch Shell’s chief executive Ben van Beurden is the only Dutch national at his home in The Hague. The other residents – his wife Stacey and their two young daughters – carry Australian passports.
Van Beurden, a surprise choice to take over as chief executive of the world’s second biggest company last year, met his wife while working in London as head of the company’s chemical unit. Stacey, who grew up at Mission Beach in Far North Queensland, and Van Beurden, had their two daughters in London but moved to Shell’s headquarters in the Dutch capital after he was selected to take over the international oil giant at a time when it seemed to have lost its way.
But while the 56-year-old van Beurden has been a frequent visitor to Australia, his first months as chief executive included announcing the sale of some $10 billion worth of assets in his wife’s homeland. But in an interview with The Deal on a recent visit he is eager to assure that the proceeds from the asset sales – 9.5 per cent of Shell's stake in Woodside, a small interest in the Wheatstone LNG project in Western Australia, and the 113-yearold marketing, refining and petrol station business – will be reinvested in Australia. He says the sales are part of a broader restructuring of the group and is keen to reassure the local market that the energy giant is not leaving.
“We are now looking at a fundamentally different portfolio in Australia,” he says. “I had to conclude that investing into integrated gas (LNG) projects would be a whole lot more sensible than keeping the money tied up in an oil products business. There was going to be more growth potential, more future rent to be had – liberating the other part of the balance sheet and recycling it was sensible.”
The $3.2bn sell-down of what was a 23 per cent stake in Woodside did not come as a surprise to the market, although Woodside's own shareholders baulked at a bigger sell-down through a Woodside buy-back. Shell bought into the Perthbased gas company as part of a takeover bid in 2000. The bid was blocked by then treasurer, Peter Costello, in 2001, on the basis that it was not in Australia’s national interest for a foreign company to take over Woodside when the North West Shelf gas reserves were becoming a major national asset. “Our intentions (regarding the stake in Woodside) were well understood for a long time and we came to a construct that was right for everyone concerned,” van Beurden says. “There was a little bit of angst around whether we would signal something unintended, like the company is turning its back on Australia with all of these sales, which is one of the reasons I’ve come here – to put that fear to bed.”
During his visit last month, which coincided with the B20 forum, van Beurden met with Prime Minister Tony Abbott, Treasurer Joe Hockey, Foreign Minister Julie Bishop, WA Premier Colin Barnett and Opposition leader Bill Shorten to press his commitment to the country. He stresses the company still has some $20bn worth of investments in Australia. These include a 25 per cent stake in the massive Gorgon LNG plant being built on WA’s Barrow Island and the giant Prelude floating LNG vessel – the world’s biggest man-made floating structure. Prelude will anchor in WA’s offshore Browse Basin when its construction in South Korea is completed. The controversial Browse project together with the Arrow coal-seam-gas joint venture with Petro-China in Queensland do not appear likely to be sold and could receive further investment by Shell. They could be potential sources for investment of the billions Shell will reap from its Australian asset sales. Van Beurden has had a long interest in Australia. He started his career with Shell in 1983 as a chemical engineer working from Holland on the North West Shelf project.
Van Beurden took over from Peter Voser January after transforming the chemicals business from 2006 to 2012. Soon after he took the top job, Shell’s poor 2013 performance forced him to issue the company’s first profit warning in 15 years. He has called for a sharper focus on the bottom line from all employees and has focused on freeing capital tied up in underperforming or non-controlled assets. He has divided the company into 150 “performance units” to test how profitable each is and where the best returns can be found. “The idea is to have a much stronger focus on the bottom line, where everybody is focused and obsessed with the bottom line they support, rather than their own contribution to the business. “I think that is somewhere we need to see a significant shift occurring this year.”
Segmentation is a strategy he pursued when he ran the chemicals unit. Its success is a large part of the reason he is leading Shell today. When he took over as head of the chemical unit, in 2006, there was an acceptance within the company that the business would not produce strong profits because it was part of a globally competitive sector. The goal then was just to beat other low-profit businesses in the market. But Van Beurden’s strategy was to go further. He sliced the business into small parts to see where ground-level improvements could be made. In some cases, this meant selling off underperforming segments, in others it provided a clearer focus on potential areas which could benefit from new investment. “If you look at the whole business and it is just making cost of capital, you wouldn’t put more in,” he says. “But if you decompose it and say ‘I can quadruple returns if I put a billion in here’, that makes sense.” He says the decision to sell the Australian refining, petrol station and marketing business was part of his segmentation plans already underway in the global refining unit.
Van Beurden has no illusions about the challenges he faces implementing his plans following this year’s big changes. “They require widespread behavioural changes and they require some restructuring, which is never something we do overnight,” he says. “The restructuring part is going to take a little bit of time. Some of it will be investing, some of it will be divesting, some of it will be operational improvements. I expect it will be a multiyear journey for some parts of the business.”
His strategy has been to put a limit on Shell’s capital spending to temper the rampant expansion plans it had pursued over the past decade. “We have chased growth an awful lot – you have to grow in this business, because if you leave it alone, your resources get depleted,” he says. “But if you do too much, or if you take on a lot of investment in parts of the business that will take a lot of time to mature, you get a significant suppressing effect on returns.” This was evidenced in Shell’s push into North American shale, which left it with $US24bn of shale assets that will take a long time to mature. But at $US35bn a year, the capital ceiling is by no means something that will suppress investment at Browse or at Arrow if the returns are there.
“We came to a point a few years ago where we had more opportunities than financial capabilities,” van Beurden says. “If I hadn’t had put the cap on, we’d be talking about $US50bn (of annual capital spending) – we will only pursue the cream of the best.” So far, investors have welcomed van Beurden, pushing shares up 18 per cent to a seven-year high and adding about $US50bn to Shell’s market value since he started. “I think we have the benefit of the doubt that as a company we are on the right track and there is a tremendous reservoir of goodwill saying this is what we want to hear,” he says. “But some of these things are going to take some time.”
At the end of the year the van Beurden family is planning to travel to Far North Queensland to spend Christmas with Stacey’s family as part of a three-week Australian holiday. “The youngest is four, so we thought it was a great opportunity to let her see part of the country,” van Beurden says. “She has an Australian passport – not a Dutch one – so we need to show her some kangaroos and the Great Barrier Reef.”
Ben and Stacey van Beurden soak up the atmosphere in the Ferrari compound at this year’s Monaco Grand Prix