SHELL directors are looking into an abyss when they would prefer to be gazing down an oil well. For years the company has been using its reserves faster than it has been replenishing them and it does not take a highly qualified petroleum engineer to tell that continuation of that strategy does not make for a happy future.

So although Jeroen van der Veer and his colleagues must have known that, in the wake of the devastating reserves scandal, a more cautious approach to business might be appropriate, they have decided this was an option they could not afford. So Shell is taking a deep breath and hoping the oil price is going to remain high while it goes off in search of new wells whose contents are likely to be rather more expensive to retrieve than it would wish.

Investors took fright at such a gung-ho approach. Jeroen van der Veer, its chairman, did not look too happy either as he laid down the new strategy. He does not have the appearance of a man who would be comfortable blowing $45 billion on the risky business that is oil exploration.

Given that last night the cost of a barrel of the black stuff was up to $47, betting it will be safe to do the sums on whether or not a well makes economic sense on a price of $25 does not look unduly optimistic. But the oil price is volatile and can move much faster than an expensively erected oil pumping station. It is not just for appearance’s sake that Shell’s rivals have all continued to do their sums on a lower oil price, despite its recent strength.

There was an attempt to reassure investors that the new Shell strategy amounted to more than just increasing its risk profile. Shedding non-core downstream assets will bring some cash into the coffers. But the efforts to persuade investors that there was a new culture at work in the company were unconvincing.

The debacle over the reserves lifted the lid on an organisation that appears to have knowingly deceived investors. Although for many years Shell was criticised for its civil service mentality, what emerged from the report into the missing 4.4 billion barrels was something more vicious and venal than Sir Humphrey might have recognised. Although Sir Philip Watts, the ousted former chairman, has been vilified for his role in the scandal, the problems clearly ran deep. It was when Sir Mark Moody-Stuart was in charge in 1998 that a paper was produced under the title: Creating Value through Entrepreneurial Management of Hydrocarbon Resource Values. Inflating the reserve figures certainly did that.

Bolstering its view of the oil price by 25 per cent may not seem unreasonable in the current market but it does have the delicious effect of making everything look much better with a mere flick of the calculator. Investors need to be reassured that, within the Shell structure there are sufficient checks and balances to ensure that any undue optimism is not allowed to infect the business and, as happened last time, some people’s bonuses.

The unwieldy structure of the Anglo/Dutch giant played its part in allowing the deception to persist. Yesterday the company gave little hint as to how that structure will be changed. Until this is clear, investors should be wary. After chasing the stock up to its 12 month high, yesterday’s news knocked the shares back by more than 3 per cent. Unless the company can come up with a convincing new boardroom structure, they are unlikely to bounce up again very fast.

The complicated combination of Royal Dutch and Shell Transport effectively wards off any hope of a bid. Investors must hope Shell is right about the oil price.

Where to, now boom is over?

FROM the Governor’s Room at the Bank of England to the boardroom of Barratt Developments, there seems to be universal confidence and rejoicing that the house-price boom is over.

Britain’s biggest homebuilder may have enjoyed the easy land profits of recent years while worrying that properties were becoming unaffordable. David Pretty, Barratt’s chief executive, claims bravely, if not wholly convincingly, that a more stable market will be healthier for developers.

Mervyn King is understandably sighing with relief. His Monetary Policy Committee started late in trying to deflate the bubble, having argued that asset prices had little impact on inflation and might even be outside the remit of the MPC nine.

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