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* New-look Shell pumps cash, bets big on technology, gas
* Outgoing CEO Voser says "no" to reining in capex
* "Don't slow down. It will cost you more afterwards", saysVoser
* Struggling with Nigeria, production downtime, Alaskarecord
* Shell now a technology, big project play
* Company stock has outperformed Exxon over past 40 years
By Andrew Callus
LONDON, May 30 (Reuters) - A decade ago, Royal Dutch/Shell's boss was fighting to close the gap between the truthabout his company's oil and gas reserves and the much largerfigure in its accounts.
He lost the fight, and his job. Scandal engulfed one of theworld's biggest companies, exposing years of neglect.
Fast forward to May 2013, and the surprise news that chiefexecutive Peter Voser will retire next year caused barely aripple. Shell has recovered shareholder confidence. But whilethe risks may all be in the open now, they remain big.
Multi-billion dollar Floating Liquefied Natural Gas (FLNG)projects and a foray into the world's most inhospitable drillingclimate north of Alaska are among the Anglo-Dutch group'sheavier technology investment bets. Capital spending isspiralling, and its production from mature fields sputters. Allthe while, oil and gas prices look shaky.
Some investors want Shell to pull in its horns and keep morefor bigger dividends. Voser, who became finance director duringthe 2004 reserves crisis and CEO in 2009, is having none of it.
"No. One learning out of all this, for every person in thisorganisation now, is you spend capex through the cycle. Don'ttry to read it, don't slow down. It will cost you more when youwant to grow afterwards," he told Reuters last week.
"I know a lot of investors and analysts. They all think theycan read the market ... slow down, grow later, shrink to grow,all these buzzwords, but one thing in our industry is veryclear; it takes you five to seven years to recover a strategicslowdown ... The market changes its views in three to sixmonths, and you can't change that fast in our industry."
As Voser enters his last months in the job, Shell stillsuffers from underperforming production, an accident-proneexploration record offshore Alaska, and the running reputationalsore of Nigeria, where spills, oil theft and pipeline sabotageare devastating the Niger Delta's ecology and cost 60,000barrels of oil a day in lost production. Much of its U.S. gasproduction is uneconomic at current prices.
Cash flow has doubled to $46 billion in three years, andcompany predictions are above $40 billion until 2015, but 2013capital spending will be $34 billion - $8 billion more than thecompany was planning for as recently as 2011, with nosignificant extra work on the calendar.
Add in the $11 billion annual dividend and the level of cashgeneration looks more necessary than comfortable.
Shell acknowledges it is "capital constrained".
Many of the challenges it faces are common to its peers. Thebig three, Exxon Mobil, Shell and Chevron, areabsent from some of the most promising new provinces - primedeepwater Brazilian acreage and the potentially prolific gasfields off east Africa. Aggressive service companies, smaller,nimbler rivals, and deep-pocketed state-backed National OilCompanies (NOCs) have muscled up as competitors.
SPUTTERING GROWTH ENGINES
There are also worries about the unpredictability ofproduction from provinces like the North Sea, where matureassets generate cash for new projects.
After a disappointing fourth quarter 2012, Deutsche Bankanalysts said investors "are being asked to take a lot ontrust". First quarter results went on to delight the market.
It's a dispiriting pattern, said a 30-year Shell veteran."We outperform in the first quarter. We do OK in the second,then the third quarter is bad and the fourth is worse. We justdon't get the up-time that others do."
Voser accepts this.
"Consistency of operational performance is the bigoperational theme we are driving at Shell now since 2011 ... Weare not yet there. But it is now firmly on the agenda of thefrontline businesses to get that right, and the improvements weare seeing are very encouraging."
Ten years after the crisis, sheer scale, structural reformand bold investments have ensured survival and healed scars.
The world number-two's record on absolute returns - shareappreciation plus re-invested dividends - shows the wounds wereskindeep anyway. Though it has underperformed Exxon over thepast 10 years, it outperformed over five years and 40. ()
Voser's spend-through-the-cycle philosophy reflects hisexperience in the 2008-2009 financial crisis, when shareholderpressure held back investments, and in the mid-1990s, when theseeds of Shell's reserves crisis were sown.
Back then, Shell had a heavily decentralised structure -corporate speak for ungovernable, isolated business fiefdoms -so the communication of problems and solutions broke down.
A 1995 reorganisation effort was eclipsed by tumbling oilprices. Shell cut investments and costs, adopting the"contractor model" trend - firing career engineers, rehiringthem as contractors.
"That worked in 98-2002," said a former Shell senior managerwho asked not to be named. "Contractors were cheap, plus ittakes a while for the weakening of those core strengths to workthrough. By 2003, when business was picking up, contractors werethin on the ground."
STRUGGLING TO KEEP UP
Other big oil companies found a new way to grow; Exxonbought Mobil, BP acquired Amoco and Arco. Total acquired Fina and Elf, and Chevron bought Texaco.Sclerotic, committee-driven Shell just watched.
Life extensions for fields in the North Sea, Oman andMalaysia maintained the illusion that Shell was keeping up.
"We were struggling," recalls Voser. "We didn't have thegrowth story to present like all the others. Into that came thereserves crisis, which was the trigger for what we then had todo."
Phil Watts was top executive when the scandal broke inJanuary 2004, overseeing a group owned 60 percent by Royal DutchPetroleum, based in The Hague, 40 by London-based ShellTransport & Trading. The dual-board, dual-ownership set-up waslater swept away.
Watts had previously been head of exploration and production(E&P) in some of the overbooking years. An independentinvestigation found he had suppressed calls by his successor atE&P, Walter Van de Vijver, to address the gap between reportedproved reserves and proved reserves under regulatory guidelines.
Ironically, one project Watts championed and saved from costcuts became Shell's flagship cash cow last year, making thecompany the leader in gas technology. That project is Pearl GTLin Qatar, which turns gas into diesel and is the world's biggestsuch plant. Shell also leads the industry in LNG, thanks in partto the Watts years, and is set to extend that position by 2017.()
Gorgon, a gas field off Australia's coast and a central partof the overbooking, is slated to start producing by 2015.
The 20 percent reserves downgrade was announced on Jan. 9,2004, and in March 2004, Watts and Van de Vijver resigned overthe overbookings in Australia, Oman, Nigeria and Brunei.
For years, the independent investigation by law firm DavisPolk & Wardwell showed, executives had exchanged emails about"lying" and "fooling the market". The would-be whistleblower,Van de Vijver, wrote in December 2003 that a report on the realreserves position "needs to be destroyed".
When Jeroen van der Veer replaced Watts, he called Voser, aclose colleague who had left Shell in 2002 for Swiss engineerABB, to be finance director.
Both men were from the downstream refining, marketing andchemicals side of the business. Traditionally, the upstream oiland gas producing arm is seen as the driver of the business.
"Van der Veer instituted the importance of bad newstravelling upwards quickly," said the former senior manager. "Ihad to give him quite a lot. We also started quarterlyperformance reviews in 04/05. There, people tell you what'swrong before you give them their grilling. We learned a lot fromthe downstream, which never lost sight of the importance ofthose things the way the upstream did."
Van der Veer, who left the board last week, forced throughthe board and share unifications investors clamoured for.
His team dumped decision by consensus and removed layers ofmanagement, but made sure the old business fiefdoms were stillaccountable for their results.
They also rehired technological expertise and broughtforward key projects. In one board meeting in 2006, Pearl, theLNG project Qatargas 4, and a Canadian oil sands project - bigcashflow drivers today - got the go-ahead.
From 2009, Voser stepped up the globalisation, axing 20percent of management jobs. He appointed fellow Swiss nationalMatthias Bichsel to push standard procedures and kit wherepossible and develop technology to cut costs.
"If you look at the world going forward, where will anenergy company like Shell differentiate itself from the upcomingNOCs, from the service companies?," Voser said.
"It can only be in the breakthrough technologies andinnovations. That's for decades what we have done and where wespend our money ... That's were our future will be."
