With the BG deal and a refreshed strategy, it's been a transformative year for Shell. Was it also the toughest of your career?
The end of 2015 and the beginning of 2016 was probably the toughest time of all, the months leading to the completion of the BG deal.
There were so many moving parts. But then once we completed the transaction, we were able to reset our strategy. Finally we could say, "This is the overall picture and this is how BG fits into it."
I think there's something incredibly powerful in coming out and saying: we want to be the best company in our industry, and we will make Shell a world-class investment case. And to set out clearly what that means.
If you are an engineer like me, it's good to have something practical to tackle, to work on solutions and take control of your own destiny.
So in that sense 2016 was easier than the year before, when we were still trying to deliver some of the key opportunities. It felt better. We were more in control – we were really making progress.
Do you have to show a different level of leadership in those tough times? And were you ever close to changing your mind on BG?
It does require you to step up as a leader. There was a lot of pressure around the many decisions we had to make for the BG deal. A lot of people wanted to offer advice: is it the right thing to do, shouldn't you abandon it, renegotiate it, and so on.
At that point it's important that you find the right balance between complete conviction and the question, "Could I be wrong?"
But once you reassert in your mind that this is the right thing to do – it won't be without risk, but it's still the right thing to do – it's the strength of your conviction that makes the difference. If you're in the middle of all that, it can feel pretty tough. That's where leadership comes in.
And no, we never considered changing our minds on BG. At times we asked ourselves necessary questions such as, are we doing the right thing? How much pressure can we sustain financially? But at the same time we never lost sight of the advantages it would deliver. Now, we can see that this deal is starting to bring what we thought it would.
When you unveiled a refreshed strategy to investors you spoke of an oil price of perhaps $60 a barrel towards the end of this decade. For most of 2016 the price struggled to reach $50, and of course fell below $30 at the start of the year. Are you comfortable with the price at the end of 2016?
Yes and no. It's very important to realise that we do not have a strategy that only works at $60. We need to be competitive at every point of the commodity cycle. And that means that we have to adjust our spending levels to a point where we can remain financially resilient at virtually any price.
Competitiveness and affordability must be the two key elements in our investment decisions. Our spending plans should fit our income stream. It's no different from an ordinary family. You spend it wisely, and you don’t spend it when you don’t have it.
We know that energy is needed to fuel economic growth, especially in the developing world. It's an essential of life. The same is true for our products and petrochemicals. So investments in our industry will continue to be required.
As long as you are the best in selecting and executing projects, you will flourish. The industry will find a way to make money even if oil is below $50, and Shell can be a winner in that environment as well if we are better than anyone else.
Unless, of course, that you believe the oil and gas business is already obsolete; that the world doesn’t need energy, or petrochemicals, any more. I doubt anyone believes that's realistic.
That brings us to the theme of energy transition and the need to build a low-carbon future. What are your thoughts today on the Paris agreement on climate change, which has now taken effect legally?
It's good news for all of us that it came into force. The scenarios work that we and others have done clearly shows that a future of net-zero emissions is technically feasible near the end of the century.
And not only can the world achieve it technically, but it also makes economic sense in a societal way. In other words, we don’t have to sacrifice economic growth. That's the good part.
The remaining challenge is: can it be done commercially? Economically is about the way society can bear it, commercially is about how to make sure the main actors – consumers and companies – can, and will, do the right thing.
And if society, through government, doesn't ensure it makes commercial sense to move to a net-zero emissions energy system, nobody will make the next step.
The good thing is that the Paris agreement raised the bar for everyone. Everybody feels the obligation to act. So in that sense I’m actually very optimistic.
What does it mean for Shell?
We will have to make our contribution. We have to be more energy efficient in our own operations, we have to make sure that we make the right choices on future investments, the right choices in our portfolio, so that our energy use and our carbon intensity reduce over time.
I believe we should be at the forefront of this in our industry. At the same time I think we should work with industry coalitions, and with broader societal coalitions, to make sure that sensible policy measures are developed and implemented.
We have to continue to call for governments to introduce effective carbon-pricing mechanisms, and to push for the development and the deployment of carbon capture and storage (CCS). Staying within the 2°C scenario is going to be extremely challenging and costly without CCS.
There will always be some carbon emissions because we cannot replace everything with electricity, which is what renewables chiefly produce. And there are also non-energy-related processes that produce greenhouse gases. So you have to search for solutions to that, and one of them is capturing and storing carbon dioxide (CO2).
Technically, we know it works. Our Quest CCS project in Canada can capture and store deep underground over 1 million tonnes of CO2 a year from our oil sands operations, and there are other successful projects at different scales around the world. But how can you create a commercial model that really accelerates CCS? That’s the big challenge.
You have a distinctive voice on energy transition within the industry. When you became CEO three years ago, was this your intention? Or has it just happened that way?
It would be too easy to say that this is all the outcome of a well thought-out plan. That's not the case. But I did, and I do, believe that you have to be sincere in what you say, and that you have to say the things you believe in. If you are only saying things in order to please, you can be sure it will end in failure.
Honesty, realism, pragmatism are all good things. But I have also learned that it doesn't always work for everyone because it can be interpreted as if you’re giving the wrong message; some would prefer to hear a message of hope rather than of realism. We do have to overcome unrealistic expectations, but we also have to bring people together on the energy transition.
The nature of the challenge of climate change is that it will require unprecedented levels of co-operation between government, industry and society.
What often tends to happen in our industry is that you have either isolated advocacy, or people have a very adversarial approach: I'm for, you're against. In the end this doesn't resolve anything. It just creates noise for policymakers. We have to move beyond that and start real collective planning for how we are going to achieve the kind of energy transition the world needs.
Shell launched a New Energies business during the year to focus on renewables. How will it work?
Through our New Energies business we will investigate new fuels and new business models and businesses that are associated with renewables.
Basically what we're doing here is finding ways to make renewable energy commercially relevant for a company like us. That's probably not going to be by developing new wind turbines or new solar panels; it is more like investing with successful third-party technologies in power projects – combining it with trading, natural gas, or other creative business models, that will allow us to make money in a way that fits our competencies.
And over time I expect our portfolio to evolve. We will start investing more in New Energies, and investing less in carbon-intensive projects. The recent winning bid for a windfarm in the Dutch North Sea is an example of that. But we must be realistic about the long-term timeframe for this evolution.
You've said you want Shell to be seen as a force for good. Why is this so important to you?
If we want to be the best we should focus on four things. And they are equally important. Of course, we should create value for our owners, the shareholders – there's no denying that. Second, we also want to be the most valuable company in our industry. The third thing is to make our portfolio fit for the future in terms of carbon intensity.
And finally, we have to work on what we call shared value with society. We have to be seen by society as a force for good. This may mean different things to different people. It may mean we should invest in communities living close to our operations, do social investments. But it's not enough. Create employment, pay taxes, develop local supply chains, help build institutions, and so on. True, all important, but not enough.
What we need to do on top of all that is to go back to our core mission: to provide more and cleaner energy solutions. We must be seen as a force for good because we deliver better products that society really needs.
Take natural gas – a much cleaner fuel. We will not only produce more natural gas, we will also develop new markets for that gas that will help local industry become cleaner, or improve the air quality in the country. The company should be a force for good by virtue of its main business, which crucially includes providing access to energy for those suffering from poverty because of a lack of energy. The more we can do this, the more we demonstrate our societal relevance.
And that's why I reject the comparisons that people make of oil and tobacco, and oil and weapons. With those industries you cannot argue that the product drives something intrinsically good. It doesn't drive societal prosperity. It doesn't drive improvement in life. Ours does. But we have to demonstrate that it does, while always acting to reduce environmental impact.
The world begins 2017 facing a lot of political uncertainty, with Brexit, Donald Trump entering the White House, and unpredictable elections to come in key European countries. How do you expect all this to affect Shell?
Political uncertainty is simply not good for us, but it's also a fact of life. We have to accept it. Some people will say that political uncertainty and geopolitical instability is good for energy prices, but eventually it isn't good for our business.
In the short term, our main decisions on investment, operational excellence, the dividend, and our portfolio may not be directly affected. The geopolitical backdrop is more for the longer run. If there's concern about the effects of globalisation, if there is protectionism, this is not good for business stability.
In the longer run it will affect global trade because of consumer confidence, trade barriers, perhaps an uncertain regulatory environment; all those things are more negatives than positives for us.
That's why we focus so much on financial resilience. But also, no matter how things may develop in 2017, we will aim to look through and beyond them, take a long-term view, and plan accordingly.
Safety is always Shell’s top priority, of course. But what are the other key priorities for 2017?
First, to make the strategy work. We have spent quite a bit of time talking about the strategy, but in 2017 we have to give it a lot more momentum on the ground.
So, what does that mean? I would say for everybody, it means that you make sure you understand what the strategy is for that part of the business you work in. And focus on outcomes we aim to achieve.
Make sure we continually ask ourselves the question: are the things that we intend to do in 2017, the plans that we have made, realistic, and credible? Do they make us competitive – the best we can be? And can we afford to do them?
I think we can be, and will be, the best company in our industry, but only if everybody working for Shell knows what it means for them and only if we can all pull in the same direction.
You want Shell to be number one in the industry. Where does it stand now?
I believe that we are in a very strong position, if you look at the quality of our assets, the quality of our technology, the quality of our portfolio and the quality of our people. But at the same time I also know that there is a gap between the true value of our portfolio and our current market valuation – how the shareholders value us.
We need to close this gap by proving that we're worth what we are worth, that we are reliable and exceptionally good in delivering what we promise, and in the end by delivering financial figures that are simply too compelling to ignore.
If we can show, quarter after quarter, year after year, that we have a superior dividend cover, free cash flow, competitive return on capital, that we are financially robust, then there is no reason for the markets to value us at less than our nearest competitor.
For the budding engineers, scientists and CEOs out there: why should they work for a company like Shell?
It's a good question when there are so many exciting tech start-ups, for instance. I'd say it's because the things we do at Shell really matter.
The scale, the complexity is absolutely second to none. You rarely get to work on things of such magnitude in another industry, at another company. Ours is an incredibly exciting industry for people to work in, to flourish in, to make a career in.
However, that as an argument is not enough. There's also the moral imperative. If today's challenges associated with energy – universal access and climate change – are not managed properly, and we as Shell are not seen as having a leadership role, then I cannot blame millennials, or anybody for that matter, if they don't want to join us.
I, too, want to feel that I work for a company that takes a lead in important societal matters.
And how do you handle the pressure of running such a big company?
In a way I never get used to being a CEO. I still have those moments when I wake up and realise that it isn't a dream and I'm really in this fantastic position. And the responsibility that comes with it never leaves you. The buck really stops with me.
I'm not complaining. The moment you think you can do this job from a relaxed position, the moment you think you don't have to be on your toes all the time, you are probably ready to go into retirement.
I have too much to deliver in this job, for this company, even to think about that.