The market is having one of its periodic anxiety attacks about Big Oil. In the last five years, the FTSE100 index has risen by about 30 per cent. Perpetually mired in Macondo, BP shares are lower now than they were then, while Royal Dutch Shell’s are barely higher. In that time, worries over peak oil production have given way to concern at peak oil demand. As the saying goes: the stone age didn’t end because we ran out of stones.

In response to last year’s oil price slump, the companies are slashing exploration; while pressure groups are encouraging the more, ahem, sensitive institutions to sell their oil shares, just as they pressed for the sale of tobacco shares a generation ago. In the US, the global warming enthusiasts have switched from lobbying congress to targetting individual coal-fired power plants. The strategy of persuading local authorities and the courts to shut them down has been very effective.

Big Oil CEOs fear that oil-fired power is next in line, which is why six of them wrote to the FT this week arguing the case for gas. One of them, Ben van Beurden, has just bet his career on high-cost oil and gas, launching Shell’s takeover of BG.

This was justified as an opportunity to pick up a good business cheaply, but in the two months since the announcement, Shell shares have slumped 14 per cent, to £19, at which point they yield almost 6.5 per cent, more than they did in the grim days of 2008. The management has already pledged to at least maintain the payout for the next two years.

However, the market is signalling that the BG deal disguises a hole in Shell’s financial projections, and that the dividend is not sustainable. Yet BP’s ability to pay tens of billions of dollars in compensation shows there’s a deal of ruin in a major oil company, and these businesses have proved hugely resilient over the decades. Shell is not only traditionally dull, it has a Dutch CEO.. The chance to buy the shares on this sort of yield may not come again.

Here’s the new Bill

Bill Mackey was the accountant who pulled the plug on Laker Airways in 1982, stranding 6000 passengers. Despite his gruesome task, his wit and charm in front of the cameras won over the public, and he produced a checklist of distinctly non-accounting indicators of impending financial disaster.

These included a retired politician chairman whose Roller had personalised number plates; a whiz-kid as CEO; a recently changed banker and an unchanged auditor; a move to new offices and “a huge order for Afganistan”. These signs, he averred, were far better forward indicators than the numbers he was trained to analyse.

Now, aged 90, he has gone to the great receiver in the sky. Whatever he finds there, not much has changed down below. The rules have forced at least a reappraisal of long-serving auditors, while personalised numberplates have mostly gone in the sacred name of security.The financial numbers remain a lagging indicator, since bad figures always take longer to add up than good ones.

Today’s early-warning checklist might include the number and length of stock exchange announcements (RNS diarrhoea), the departure of a long-serving, high-profile CEO (Terry Leahy from Tesco, John  Browne from BP), serving on too many boards (Dennis Stevenson at HBoS), an enthusiasm for round-robin letters or presidency of the CBI (Mike Rake).

Mackey might have accepted the idea of “stakeholders”  but he would surely have been as suspicious of the fashionable enthusiasm for boardroom diversity as he was of the Queen’s Award for Industry, a much missed and very fine forward indicator of trouble.

So can they outperform the boys?

Female fund managers number just 7 per cent of the total in the UK,  according to Tilney Bestinvest. Fund management would seem eminently suited to female strengths; since judging those running businesses where a fund might invest is so important. We’re forever being harangued about women in the workplace, and fund management is one of the few businesses where it should be possible to measure whether diversity really helps. Sadly, with the proportion stuck at 7 per cent, they are still too few for a statistically valid sample.

This is my FT column from Saturday

Advertisements