Watts - the power behind Shell

THIS week, Philip Watts has been brutally reminded of the dangers and uncertainties of the oil industry. Eleven people, including three of his staff, lost their lives when a Sikorsky helicopter carrying them to Shell's Leman Field crashed into the sea off Great Yarmouth.

Watts says: 'We extend our heartfelt sympathies to the families and colleagues of those who have been lost. It is a very sad time.'

The careful planning for which Shell is famed means little when tragedy strikes. It is a grim week for Watts, chief executive for just a year. Four days ago, a former Shell manager in Houston suggested the £4.7bn it paid out to book power plant capacity in the US was now ' worthless'. Shell says it will make money over 20 years, but its shares tumbled.

Even £4.7bn is not a huge sum for Shell. Last year, its sales were £120bn - more than £2bn a week. It has 25 million customers and 100,000 employees across 140 countries.

The Anglo-Dutch giant is one of the world's top three oil companies, neck and neck with BP for second place behind Big Daddy Exxon Mobil. Watts, a hosier's son from Leicester, took over the top job from Sir Mark Moody-Stuart a year ago.

Moody-Stuart was a hard act to follow. In 2001, helped by a rapid rebound in world oil prices, Shell's profits soared to a record £9bn. Soon after Watts took over, the September 11 attacks sent stock markets, and oil prices, reeling, Then Wall Street collapsed as accounting scandals piled up.

Thoughtful, slowly spoken and precise, Watts remains unruffled. He says: 'A dip into recession always rattles the system. I've been really pleased that Shell and the Royal Dutch group showed real resilience. Whatever is thrown at us, our objective is to have underlying robust profitability.'

Has the tide of US scandal been a surprise? 'It's easy to be wise after the event. You have to distinguish between two aspects - one where fraud is suspected, the other where people just got carried away with the business model they were using, which, subject to the acid test of recession, did not stand up.

'Business people everywhere need to take the lessons to heart. Rightly, people are looking at the role of auditors, at governance, the role of non-executive directors, accountancy standards and rules. It won't be a bad thing to look at all aspects. We need to take time. It doesn't need to be a knee-jerk reaction, but we will have to satisfy shareholders and the public that those issues are being taken very seriously.

'For many years, we at Shell have had a reputation of prudence and strict governance. We have two auditors, and we rotate our lead auditors as a matter of course. Our governance guide is updated regularly. Naturally, we are looking at what has happened and making sure we are up to speed.'

Is Shell a sluggish bureaucracy, as its critics allege? 'That accusation might have been true five or seven years ago. We have had a major reorganisation and I find our reaction time pretty good.

'I don't think it's fair that we are caricatured in this way. We take big bets for our shareholders - Sakhalin in Russia is a $10bn investment, our share is $5.5bn. In Nigeria, total investment is $20bn, our share is $5bn. If it means we go carefully and try to look at all angles before making these massive decisions, I plead guilty.'

He rebuts criticism of Shell's massive profits. 'Our target is a 13-15% return on capital employed. You need that to put money back into the business and help it grow. When you are investing as much as £8bn a year, you need profitability.'

Since he took over, Shell surprised many by launching a string of takeovers - most lately the £3.5bn purchase of North Sea rival Enterprise. 'We talk about our aspired portfolio. We want more in the upstream, in gas and power.

'We want profitable growth in the downstream, in chemicals. We want to get a big position in China and India. It's a combination of clear-sighted direction and opportunism where deals are available. That's the story of the last 12 months.'

Chevron's bid for Texaco enabled Shell to buy out Texaco's gas stations and gain top US market share. To become number one in lubricants, it forged a deal with Pennzoil, which is not yet completed. 'If you look at our aspired portfolio and where we are today, there are gaps.By these very focused acquisitions, you fill the gaps,' says Watts.

Every inch a Shell man, he bristles at suggestions that BP has led the way in deals. 'Everyone has his own story. We have very similar market values, but we are very different-companies. We can grow from our existing position. A rose is a rose is a rose.'

Shell is just as committed as BP to 'inclusiveness'. Watts says: 'The big issue is gender - making sure women don't face unspoken barriers.' Shell's intake of graduates is now 50% women - 'profoundly heartening'.

Watts is proud of his Leicestershire roots. 'My Dad was a hosiery operative all his life, stood in front of 12 machines making children's socks. He was a great guy.' Philip's brother, Robert, is a vicar at Tintwistle, near Barnsley.

Watts is a loyal fan of Leicester Tigers rugby club, the county cricket side and even hard-pressed Leicester City. He took a physics degree at Leeds and, three weeks later, left for two years' teaching in Sierra Leone with his wife, Jan, returning to Leeds for a Masters in geophysics, which led him to Shell. He has two children - Sarah, a mother of three, and Jonathan, who works in IT. At home, he likes working on his new Japanese garden - 'very therapeutic'.

His £1.5m-a-year job brings him face to face with King Fahd of Saudi Arabia, China's Ziang Jemin and President Obasanjo of Nigeria.

Asked what he has enjoyed most, he says: 'Doing seismic in the swamps and jungles of Borneo. It was awful, but it was my first job at Shell - a great feeling. And I loved leading the team that discovered the Troll gasfield.'

He is gradually pushing important changes through the vast Shell edifice, lightening up its asset-heavy structure. 'We sold 40% of our chemicals two years ago. Over time, you see the full picture of active portfolio management. All business is tough. But, if you are the leader, there are quite often decent returns to be had. That is our ambition in all our businesses - to be leader.'

He is developing fast-moving service businesses such as research arm Shell Global Solutions-which now sells a third of its products to outside customers, while at the same time using Shell's huge technology skills in massive new projects such as gas to liquids in Malaysia and the freezing of natural gas on a huge floating barge complex to make remote fields commercial.

Shell is also using new drilling techniques to tap deep water fields Goldeneye and Penguins in UK waters, Nakika in the Gulf of Mexico.

Watts chairs the World Council for Sustainable Development and is keen to look ahead. He says: 'We are keen on solar energy, biomass, wind energy, hydrogen fuel cells. Fifty years on, there will be a lot of oil and gas, but there is talk that one third of the energy mix could come from these other forms. The Stone Age did not cease because of a shortage of stones!

'The idea that we could switch to renewables overnight is a pipe dream, but progressive companies are getting ready for the next era.'

On his aims for Shell, Watts says: 'If you are leader of a very large group - more than 100 years old - and you've been involved with a merger of two companies, Shell and Royal Dutch, you join a long line of leaders.

'This is a company that has steadily grown and improved over the years. That's what I'd like to do - hand over the baton with the business in better shape.'

Brian O'Connor