Shell boss leaves two major legacies as successor is named

Ben van Beurden, whose departure as Shell chief executive at the end of the year was confirmed on Thursday morning, leaves at least two major legacies.

The first is the blockbuster £47bn takeover, announced in April 2015, of BG Group.

The deal attracted no end of criticism at the time. There was a lot of unease, at a time when oil and gas prices were depressed, about Shell’s ability to sustain its dividend payments – which then accounted for £1 in every £9 of dividends paid by UK companies. The company was accused of over-paying for BG.

Mr van Beurden’s argument was that, at a time when Shell’s reserves were falling, BG would significantly improve its position on that front. It was also a huge wager on a recovery in oil and gas prices and a big strategic bet on liquified natural gas (LNG).

In the event, the Dutchman was forced to cut Shell’s dividend for the first time since the Second World War in 2020, but that was due to a collapse in oil and gas prices at the start of the pandemic.

By then, the acquisition of BG Group had proved astute, even more so since Russia’s attack on Ukraine this year sparked a global scramble for LNG. Shell now accounts for between 15-20% of the global LNG market – a position that will serve it well for many years to come.

Alongside the BG Group, Mr van Beurden has also been busily reshaping Shell’s portfolio, offloading less profitable or productive assets. This, of course, was less glamourous or eye-catching than the BG Group acquisition but nonetheless vital to improving the group’s overall efficiency.

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Shell pointed on Thursday to the $80bn worth of divestments that have been completed over the last decade – something that has kept concerns over the company’s debts at bay and which would not have been possible had it not been for the higher-quality stream of earnings made possible by the BG deal.

The second major legacy Mr van Beurden will point to is that he kick-started Shell’s transition away from fossil fuels and towards renewables.

He announced in April 2020 that Shell would seek to be a net zero emissions business by 2050 or sooner and, while a debate still rages in the industry over whether Shell or its rival BP has been more ambitious in seeking to address climate change, it is beyond dispute that both have led the way compared with other global energy giants.

Of course, Shell is never going to be able to move rapidly enough to satisfy critics in the green movement, particularly after it decided to oppose a Dutch court ruling last year requiring it to cut its carbon emissions by a net 45% by 2030.

Sceptics also point to the fact that, on this year’s results, renewables still only account for just 5% or so of Shell’s overall earnings – although part of that can be explained by the fact that Shell’s traditional hydrocarbons businesses have been rendered all the more profitable by this year’s surge in oil and gas prices.

The company was also highlighting that, during the last decade, the company has reduced ‘Scope 1’ and ‘Scope 2’ emissions (those emissions caused either directly or indirectly by its operations) by one-third.

While those are two big achievements that Mr van Beurden can point to, somewhat more ambiguous is his legacy in pure share price terms.

For much of the time since Mr van Beurden became chief executive, at the beginning of 2014, Shell’s share price has traded below the level it was when he took the helm (at the time of writing it is roughly 9% ahead of that date).

Shell will legitimately argue that is partly down to events beyond Mr van Beurden’s control, such as the pandemic, while it may also argue that strict comparisons with January 2014 are also tricky because of the company’s landmark decision, last year, to abandon its complex dual share arrangement and relocate its tax residence from the Netherlands to the UK – in the process dropping ‘Royal Dutch’ from its corporate moniker.

Shell was also emphasising a slide from its recent results presentation pointing out that its organic free cash flow during the first half of this year was three times that of the same period in 2013 when Brent Crude was trading at a roughly comparable price.

It also points out that adjusted earnings are up 65% on that earlier period and that shareholder distributions were up from $6.4bn in the first half of 2013 to $12.8bn in the first half of this year. The company can also argue that, in absolute terms, Shell’s share price performance has been better during the period than that of global peers such as Exxon, Chevron and BP, although not Total Energies.

In opting for Wael Sawan as Mr van Beurden’s successor, Shell has very much opted for the continuity candidate.

Mr Sawan, who was born in Beirut and who is a dual Lebanese-Canadian national, was seen by investors as the front-runner to succeed Mr van Beurden when rumours began circulating earlier this summer that the latter was preparing to retire.

Currently director of Integrated Gas, Renewables and Energy Solutions, he has been at Shell for 25 years, during which time he has distinguished himself in many key parts of the business.

Shell’s chair, Sir Andrew Mackenzie said: “Wael Sawan is an exceptional leader, with all the qualities needed to drive Shell safely and profitably through its next phase of transition and growth. His track record of commercial, operational and transformational success reflects not only his broad, deep experience and understanding of Shell and the energy sector, but also his strategic clarity.

“He combines these qualities with a passion for people, which enables him to get the best from those around him. The outcome of the board’s managed succession process resulted both in the appointment of an outstanding CEO and proved the strength and depth of Shell’s leadership talent.”

The reason there is unlikely to be a change of strategic direction is because that has already been set by Mr van Beurden. It can be summed up as generating sufficient capital from the company’s existing oil and gas assets to continue investing in the energy transition.

That sounds easier said than done and Mr Sawan will face plenty of challenges.

Not least among these is satisfying the multitude of different stakeholders that Shell has. Governments and consumers want certainty over security of supply, at a time when Vladimir Putin has weaponised energy, while investors want superior financial returns. Employees want a company for which they are proud to work and where their safety is taken seriously. And all want an efficient transition to net zero – even though opinions may differ as to the pace at which this is achieved.

It is why running Shell is one of the biggest jobs in global business.

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