Amongst the Western oil majors, Shell is the No. 2 company by production behind only Exxon Mobil Corporation (NYSE:XOM). But like most of its competitors, it has struggled to grow its oil and gas production and replace its reserves.
In fact, its reserve replacement ratio — an important metric that measures the extent to which companies are replacing the oil they produce with new reserves — is among the lowest in its peer group, coming in at just 85% last year. By comparison, Total SA (ADR) (NYSE:TOT) reported a reserve replacement ratio of 93% last year, Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX)‘s ratios came in at an impressive 115% and 112%, respectively, and BP plc (ADR) (NYSE:BP)‘s was just 77%, the worst among the oil majors.
In addition to the broad challenges of stagnant production and difficulty in replacing reserves, van Beurden will also have to rectify the company’s beleaguered operations, including its operations in Nigeria, which have been plagued by oil theft and sabotage that cost the company some 100,000 barrels per day in lost production during the second quarter, and its oil campaign in Alaska, which was recently placed on pause because of regulatory, environmental, and other uncertainties.
The bottom line
But despite this array of challenges, I think van Beurden will inherit a company in much better shape than it was a decade ago, when the infamous 2004 reserve overstatement scandal led to the ouster of its top executives and severely tarnished the company’s reputation.
Peter Voser, his predecessor, has been a solid CEO in many respects. Specifically, I think he has helped turn Shell into a more predictable company, with an emphasis on investing in projects that will provide stable returns for decades to come, such as its LNG ventures in Australia, Canada, and Angola. While only time will tell if van Beurden can improve on Voser’s legacy, his extensive experience and success with downstream and LNG suggest that he may be just the right man for the job.
The article Can Shell’s New CEO Lead It to Greatness? originally appeared on Fool.com is written by Arjun Sreekumar.
Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Chevron and Total.
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