Royal Dutch/Shell Group's unexpected reduction in oil and gas reserves increases pressure on Philip Watts as chairman of Europe's second-largest oil company, Shell investors and analysts such as Robert Goodof said.
Under Watts, the 171-year-old company lost its place as the continent's largest publicly traded oil and gas producer to BP Plc and missed goals to expand output. Yesterday, Shell cut its estimate of proved reserves by 3.9 billion barrels, or 20 percent, worth some US$120 billion today as crude oil.
"The pressure has really to be on the guy," said Goodof, an energy analyst at Loomis Sayles & Co in Boston, a unit of French bank Caisses d'Epargne's CDC Ixis. "I think there has to be management changes. If Phil Watts is the guy, then maybe he has to leave."
Shell's disclosure came alongside figures that showed Shell for the third year in a row failed to replace its production with new reserves, increasing investor concern about growth at Shell's exploration division, its most profitable unit. Shell shares yesterday had the largest drop since July 2002, down 7.7 percent.
Loomis Sayles owns less than 40,000 Shell shares and hasn't been a buyer for months because it was "nervous" about Shell's management and its decisions, Goodof said. The company will analyze developments at Shell before making any change to its position, he said.
Analysts criticized the absence of Watts from a conference call held yesterday to discuss the changes to the definition of the company's proved oil reserves and explain the reasons behind them. Shell's head of investor relations, Simon Henry, took questions and declined to say where the chairman was.
"The fact Watts wasn't there added fuel to the fire," said Derek Mitchell, who helps manage the equivalent of US$2.8 billion at Royal & Sun Alliance Insurance Group Plc. "It certainly increases the pressure on him."
Shell spokeswoman Mary Jo Jacobi on the conference call declined to speculate whether any management changes would come as a result of the setbacks at Shell. She only said the company suspected no mistakes in past reserve estimates.
"We believe our folks did the right thing at the right time," she said. "We don't believe it's valuable to speculate beyond that" on whether management changes will be made.
The reduction in reserves is the latest setback under Watts, a 58-year-old Shell veteran who has worked at the company since 1969. He took the top job in July 2001 and ran the oil-production unit when some of the reserves were booked.
The month after becoming chairman, Watts signaled that Shell would miss one of its key targets, a goal to boost oil and gas output. A formal reduction to the target followed in September 2001. Last October, Shell said it will miss its goal last year.
Watts "has never had a particularly good presence with investors," said Kevin Lilley, who helps manage about US$44 billion at Royal London Asset Management, including Shell shares. "They seem to be accident prone."
In the past, Shell has suffered from the company's failure to meet profit forecasts, missing consensus estimates in four of the last six quarters. Lord Browne, Watts's counterpart at BP, has beaten consensus forecasts in four of the last six quarters.
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