Extracting the Algorithms of the Shell Shock

Royal Dutch Shell

Forbes writer Christopher Helman announces it bluntly What the Hell, Shell? Oil Giant Warns on Disastrous Quarter.  Meanwhile, The Australian writer Matt Chambers worries Local fallout likely from Royal Dutch Shell's shock profit downgrade.

I want know to why this came so surprisingly, so as to catch newly minted CEO Ben van Beurden apparently off-guard and so as to shock analysts and reporters.  

A miscalculation can be corrected.  Planned investments can be pulled back.  Business lines can be pressured to deliver.  van Beurden said as much in a statement:

How will Shell turn it around? Figuring that out falls to new CEO Ben van Beurden. “Our 2013 performance was not what I expect from Shell,” he said today. “Our focus will be on improving Shell’s financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.”

But really the critical factor is for Shell to understand what the hell happened.  In my language, it is about extracting the algorithms (i.e., essence) of what internal analysts and executives had surmised when they decided to invest in the Eagle Ford shale of Texas.  Any business projection and plan - and I mean any - are fraught with uncertainty.  But what did Shell see and not see, ahead of that investment, and how did they come to decide what they decided?  

Extracting the algorithms may reveal that the pressure to play catch-up in Texas shale affected the assessment and consequently the judgment on what to pursue.  Perhaps there were other reasons and motives involved, and perhaps Shell bit way too much more than it could chew, especially in the midst of a CEO transition.  Were top leaders sleeping at the wheel?  

Extracting the algorithms is also about learning what to do differently going forward.

It's like this: I played a golf scramble with friends one time, and among my team members I was the least experienced and skilled.  So when we were putting, their instruction for me was to make sure I didn't put short.  Interestingly, this scramble took place in Dhahran, Saudi Arabia, and at that time the golf course was entirely sand.  The so-called green (i.e., putting area) was actually brown, as course managers packed it down with oil.  But this packed sand captured the path of the golf ball, and therefore revealed the lie of the surface.  

In essence, then, because there was a greater likelihood that I would miss the put, at the very least let our team draw on my failure to learn how they needed to put in order to hit the hole.  Specifically my putting even a missed shot long positioned my golf mates to extract the algorithms of the putting "brown" surface in the best possible way.    

Whether or not anything is communicated to the media, Shell must extract the right algorithms and to do so fully.  Otherwise, van Buerden keeps his giant of a company vulnerable to major miscalculations, lost investments and delivery shortfalls.