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

The Australian - The Deal - - Front Page - Story by: Matt Cham­bers Pho­to­graph by: Steve Bac­con

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

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