High-flyer in global oil keen for Kiwi focus

Mike Bennetts is CEO of Greenstone Energy, the new owner of Shell New Zealand. Photo / Supplied

When Infratil first sought out Mike Bennetts to head Shell, the oil industry veteran's immediate instinct was no thanks - been there done that.

"My first thought was thanks a lot for asking me to talk about this but I have no interest. When I came back to New Zealand I wanted to get out of the oil and gas downstream sector, I wanted to have a change."

However, after talking to Infratil chief executive Marko Bogoievski and property director Lib Petgna for half a day his view changed.

Bennetts says before the meeting he thought he would be asked to run the business the way oil companies were always run.

"We talked about the industry, what was difficult and what was possible and by the end of that four hours I was convinced I could make a difference and they were too," he says.

"I got hugely excited by this because here was a chance to take all my 25 years of experience and apply them in my own backyard and to do it in a way where you have local and committed shareholders and get to redefine what is the core business."

The upshot was Bennetts' appointment as chief executive of Greenstone Energy, the operating company for Infratil's and the NZ Super Fund's $696 million purchase of Shell's downstream assets including 229 filling stations and 17.1 per cent stake in NZ Refining.

Details of the deal were released on Monday, just over a year after Shell announced it was quitting its frontline presence here in line with the global move by oil majors to concentrate on exploration.

The new owners are promising no high-octane moves for a little while yet, says Bennetts a 25-year veteran at BP.

First off he will ask Shell's 220 staff what excites them about the deal, what concerns them about it and the possibilities they see. "I'm very keen to spend at least my first three months listening to what everyone has to say in response to those questions. I'm always amazed by CEOs who can go into a company on day one and start to make changes, I guess I'm not that talented."

A three-month delay in finalising the deal while hammering out supply arrangements has given more breathing space to manage the transition from Shell with its 100-year New Zealand tradition to the new entity.

"As much as I talk about the future I've got to be careful I don't do that in a way that is disrespectful of the fantastic position the current employees have done in this market."

Shell has leading sites, pumping on average twice as much per station as its competitors and claims a reputation for being leader in dropping prices and a follower in putting them up. Although BP got the jump on Shell before Easter in dropping prices, the claim is endorsed by the AA's petrol price marketing analysis.

"It's really important to maintain the current position. The next most important thing is to manage the transition process and once we've got that done then we turn our attention to strategy," says Bennetts.

By September there would be six months of earnings to digest and Bennetts will present a blueprint for the board.

Besides needing to keep prices down on the 2.5 billion litres of fuel it sells a year, the joint venture must find a way to trade on its New Zealand ownership.

"We obviously want to provide a return to our investors but we want to have competitive prices - we want to be famous for providing competitive prices."

Although a foreign control watchdog points out Infratil can't claim to be 100 per cent New Zealand-owned, playing the Kiwi card will form an important part of the strategy in an industry where most motorists fill where it is most convenient and then according to price and quality.

Rather than see profits disappear completely overseas, now they "can buy from a company where the profits are retained in New Zealand, reinvested in the business or returned to the shareholders, in many cases the pensioners of New Zealand".

One area for urgent attention is the convenience side of the business

The joint venture has paid $13.5 million to use the Shell brand, with options to extend beyond five years or quit it earlier.

"We need to be responsible. There is huge downside risk from brand disappearing," Bennetts says

"When the time is right we'll seek the views of people and ask them what's more important - all the benefits of a global brand or would they like something that's closer to home, more about being a Kiwi-owned company."

While there was never going to be one answer there would be a sweet spot.

"Brands are very emotional which is another good reason not to disturb that early on but to consider what your options are."

At present Shell earns a net margin of 5c to 6c a litre of fuel so it is in shop sales where returns can be much higher. Shell stations on average sell 5.2 million litres a year and $1.2 million in shop or convenience sales.

This is where there is room for improvement with Shell widely acknowledged as lagging rivals.

"Shell globally invested in exploration and production rather than at retail. They've never scrimped on what needed to be done but they've never gone beyond," says Bennetts.

Bennetts says customers can expect a greater concentration on convenience food and drink rather than on stocking grocery items.

One source of irritation with some motorists is the lack of service on the forecourt and this is unlikely to change. Bennetts said the help customers can expect varies between stations and there is generally help available if needed.

"Where it matters we're there but when you pull up you're not going to have a dozen people waving you to a pump. It's a sad consequence of tighter economics and the customer saying to us price is more important than service, in general."

Of Shell's retail stations 111 are freehold, 103 are leased and 15 are operated under Shell branding by independent dealers. Franchisees typically own about 10 to 20 stations and there are about staff employed across the 229 stations and truck stops.

The Campaign Against Foreign Ownership of Aotearoa says Infratil's subsidiary NZ Bus treated its workers badly during disputes in Wellington and Auckland and warns Shell workers will be dealing with the same parent company.

Bennetts is aware of the damage done but is circumspect.

"We'll do what's right in that (Shell) model which may look different to the New Zealand Bus - Infratil model. In saying that I'm casting no judgment on what happened, this is a different company with a different set of circumstances."

Bennetts grew up in Howick, went to school in Manurewa and got into the oil industry at Europa in the early 1980s after dropping out from Auckland University one year into a law degree. Europa was the last of New Zealand's indigenous oil companies and while owned by BP by the time Bennetts joined in the sales team, it was run as a separate company.

It was there his potential was recognised by BP who later put him into a global elite of 150 staff with the most executive potential after serving in South Africa, a stint back in New Zealand in the mid-1990s when he and his wife had two daughters.

After BP's "finishing school" for 18 months in London he was posted to Singapore as chief executive of the company's Integrated Supply and Trading business unit in the Eastern Hemisphere, an area covering Australasia, Asia, the Middle East and sub-Saharan Africa.

This business unit had annual revenue of US$40 billion ($56 billion) and 500 employees amongst 25 nationalities across nine offices.

He likened the experience to running an investment bank - with just 15 per cent of business BP-related, the rest third party trading - at a time when commodity prices were soaring.

"It helped sharpen me up around risk management and finance."

Before he took the job a subsidiary, China Aviation Oil, posted the single biggest trading loss out of Singapore since losses since those that brought down Barings Bank in 1995.

Bennetts says he helped put together a rescue package where BP invested in the company and provided capability at the management level.

"I feel proud that able to rescue a company and return some of the money to the creditors but deepen the relationships between the Chinese Government and Singapore which was an embarrassment to all of them.

"It's a wonderful way to learn through someone else's mistakes."

Infratil says Shell represents about 10 per cent of its investments and will be part of its portfolio for a long time.

Bennetts welcomes the long-term horizon. "It's very easy to take a business like this and work it to death over two years and sell it to someone else. I think the approach by the investors is different and one I feel more comfortable with."

NEW LOOK FOR SHELL

The new boss

Mike Bennetts
* Age 48
* A BP executive for most of the past 25 years.
* Lives in Auckland with his wife and two daughters

Shell in NZ

* Shell has been in NZ for nearly a century and buys crude and refined fuels and chemicals and distributes refined products to individual and commercial customers throughout the country.
* Shell distributes 2.5 billion litres of fuel a year, or about 30 per cent total requirements.

The deal

* Infratil and the NZ Super Fund have paid $696.5 million for Shell's downstream assets. These include:
* 229 service stations and 95 truck stops nationwide.
* Other specialist fuel facilities for aviation, marine and commercial users.
* 25 per cent of Fly Buys.
* Annual purchase of 2.5 billion litres of crude and refined product.
* 17.1 per cent of the NZ Refining.
* 25 per cent share in coastal shipping network.
* 12 storage and terminal facilities.
* Shell retains its exploration business in NZ.