First-time visitors to Royal Dutch Shell’s Indian headquarters in Gurugram are required to sit through an eight-minute health and safety video. Then they have to fill in a form to declare that they watched it attentively. This process, however tedious, reflects Shell’s core values: safety and assurance.
It, therefore, came as a surprise, when Shell picked 39-year-old Nitin Prasad to replace Yasmine Hilton, who retired last year. After all, this is an industry in which corporate honchos regularly need to interact with government officials significantly older than Prasad. Given that no one in their thirties has headed a major oil and gas firm in India before, an older executive may have been the safer bet. When it comes to picking its leaders though, Shell has shown it can make bold decisions. Ben Van Beurden, appointed as Shell’s global CEO in 2013, was an outside choice, behind better-known candidates such as CFO Simon Henry in the pecking order.
Prasad, dressed in a black suit and red tie, greets me in a spacious conference room adjoining his ninth floor corner office. As a reporter, I’ve met most of the dramatis personae at the top oil and gas companies. Prasad immediately strikes me as a lot more approachable than others at similar positions; it would be easy to mistake him for a young tech entrepreneur.
The personalities of Shell India chiefs over the years have mirrored Shell’s needs at the time. In the 1990s, when a good amount of lobbying was required, they had Vikram Mehta, a former bureaucrat who knew his way around government corridors. He was followed by Hilton, an expert in information technology, who set up Shell’s IT hub in Bengaluru. Prasad comes in at a time when energy solutions need a rethink.
Over the last 125 years, Shell has often faced unwelcoming administrators, but it has dug its heels in, taking whatever business it could get. India’s complex maze of laws, regulations, and protectionist policies has mostly relegated Shell to the fringes of an industry dominated by state-owned giants. “We can’t really change the cards that we have been dealt,” says Prasad, when asked about the obstacles the company faces. “You have to take a look at resources beyond just hydrocarbons.”
Since it was allowed to re-enter India in 1994, Shell hasn’t just been digging wells for crude oil. It has sold lubricants and set up an LNG terminal. It has also built an R&D centre, and an IT hub which now caters to most of its global operations.
India has one resource in abundance that makes it a vital market for Shell: a massive workforce. “The first priority is to attract, motivate and retain the best talent in India and grow the capability that we have built,” he tells me.
When multinationals talk of India’s human resource base, critics point out such companies view the country as a back office or an outsourcing hub. This view is echoed by a retired Indian Oil chairman who dismissively tells me: “No path-breaking work is happening at Shell’s IT or R&D centres here.” The person did not wish to be named as he continues to be associated with the oil and gas industry.
While old timers may be sceptical, the fact is multinationals are embracing the quality of India’s manpower. Prasad disagrees with the notion that India is just a back-end office. “If you look at the human potential, it is not just the raw manpower but our ability to innovate, create, and actually contribute. That is what the human resource potential is really all about ... [rather than] the earlier narrative of India being a back office, and dare I say a hub for cheap labour,” he says. Shell has about 4,500 employees in India.
The groundwork for the human resource and research hubs was laid by his predecessors. Hilton, who is credited with redrawing the company’s game plan in this regard, told Fortune India in 2013: “I am confident that there will be a CEO of Shell Global from India. I guarantee it. I think India has the talent to do that kind of job. I have no doubt about it.”
Prasad’s mandate now is to build on that base. There are already several examples of people moving from Shell India to global roles where they are managing teams in departments ranging from taxation to marketing operations. “One thing that is true about Shell is that once you join the company you are part of a global workforce. Nitin himself started in Singapore before coming to India,” says a former Shell India employee who spoke on the condition of anonymity.
India is something of a production factory of geologists and engineers, who are assigned to Shell projects across the world. Says Kalpana Jain, partner at Deloitte Touche Tohmatsu India: “Technologists from government-owned companies have increasingly spread across the industry to private and foreign companies.”
Listing out some of Shell’s achievements in India, Prasad says that the R&D facility has worked on drilling projects in Iraq and Russia, as well as on the world’s largest floating LNG terminal project in Australia.
The IT centre has worked on GST and other tax projects across the world. “Some of the work where we are specialising on a lot more is the digitisation of the oil and gas industry. Whether it is analytics or digitisation of safety, we see that Bengaluru is the heart of both the IT side and the R&D side of our global operations,” Prasad says.
It’s not just the human resource potential that excites Prasad. There is also a huge opportunity for new streams of revenue. “Priority No. 2 is to scale up and introduce new businesses from our global portfolio,” he tells me. “We want to lead the discussion on the changing energy scenario.”
Though Prasad admits that Shell is a patient organisation, he tells me to expect a slew of “solutions” tailored for the Indian market over the next couple of years. One of those is biofuels. “We are looking at renewables like biofuels as a new energy source. We have a waste-to-energy demonstration plant. This has tremendous potential for India specifically.”
The demonstration plant is based on IH2, a technology developed by Shell which converts agricultural and urban waste into road-ready biofuels. “We are working with partners across India to take this forward. Shell is going to play a very large role in biofuels in India,” he says.
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India has set a blending target of 5% for bio-diesel, and doubled the target for ethanol blending in petrol to 10% by 2022. The new policy could result in the biofuel industry snowballing into a Rs 50,000 crore market, from about Rs 6,000 crore at present.
Prasad says Shell wants to partner with social entrepreneurs and provide them with the technology to set up such plants. Why does a behemoth like Shell need these tiny, relatively unknown partners? It requires entrepreneurs to negotiate with municipal corporations for pricing urban waste and to collect agricultural waste from several villages, Prasad explains. “Now these are areas beyond Shell’s ability. We need partners and we want to work with not just the government but funds, startups, and other corporations in the marketplace,” he says.
Perhaps one of the reasons Shell chose Prasad was because of the need to work closely with young tech entrepreneurs, who may find it easier to build a relationship with him.
Prasad, who despite his youth is something of a Shell veteran having spent 12 years across several roles at the company, says his previous job as managing director of Shell Lubricants in India prepared him for his current gig. He is credited with turning around the division’s performance in a highly competitive market. “One of the interesting things that we did in Shell Lubricants was focus on the Indian consumer. We drew a lot of deep insights on the product and portfolio that India particularly needs,” he says.
That sort of customisation, often the hallmark of e-commerce and consumer goods companies, has become important even to an old-economy business like oil and gas.“I think it is going to be a lot about what are the particular energy solutions that India needs and how Shell can bring those to the country,” he says.
But does this new orientation mean Shell India won’t invest in good old-fashioned oil and gas fields anymore? The answer I get is perhaps not one that the Narendra Modi-led government would like to hear given its efforts to woo global majors to exploration and production. Just last year the Ministry of Petroleum and Natural Gas outlined a new policy for auctioning future oil and gas fields. Prasad feels the policy framework still does not favour investments. “At the end of the day, we have hydrocarbon resources but they are scarce and complex. It is not an easy extraction game. These sort of resources require a really open framework,” says Prasad.
Critics have labelled Shell’s approach to hydrocarbon exploration and production as too conservative. According to a former Shell India employee, when the company compared government data on potential reserves to its own assessment, it often found discrepancies. Those doubts over the quality of data dampened Shell’s investment appetite.
This circumspect attitude did lead to one big mistake. The company sold off its Rajasthan oil fields to Cairn Energy 10 years after acquiring it for a paltry £6 million (Rs 51 crore). The fields have turned out to be the largest crude oil reserve in India, producing 297 million barrels of oil equivalent until the first quarter of 2015-16. To bring some perspective, the cumulative production from the Rajasthan fields would have accounted for 3.6% of Shell’s global crude oil production in the same period.
On the whole, the former employee says, the company’s caution has paid off. “They haven’t made any bad investment in the country. Even though some might argue that they haven’t expanded their Hazira LNG plant, the fact is they are still making money from it and had done so even when spot prices of LNG were falling on a daily basis.” The facts do back up his claim, as the LNG plant in Gujarat’s Surat district made a profit of Rs 169.5 crore in 2014-15 and Rs 214 crore in the year prior.
BP Plc’s problematic investments provide a cautionary tale. BP shelled out $7.2 billion (Rs 48,913 crore) to purchase a 30% stake in Reliance’s oil and gas blocks in the Krishna-Godavari basin off the east coast of India. Supposedly India’s largest natural gas find, the block was producing well below its targeted production at the time when BP bought into the fields; the output has fallen even more since.
According to records of the Ministry of Petroleum and Natural Gas, the block was supposed to produce 70.39 million standard cubic metres a day (mscmd) but its output has now plummeted to 8.7 mscmd. The blocks have been mired in litigation as Reliance, BP, and their partner Niko Resources sought a higher price for the natural gas from the field.
The litigation meant that when the Modi administration did agree to a new natural gas pricing formula in 2014, BP and its partners were not eligible. Among the exceptions for the new gas price were blocks where there was an ongoing legal battle between the operators and the government.
It is not that Shell is shy of making investments, Prasad says. He tells me that their plans for expanding the Hazira LNG terminal remain in place but they will execute it only when the demand for natural gas increases. “We have always had a plan to expand Hazira. What we want to see now is that the demand to catch up with the LNG capacity in the country.”
Apart from subdued demand, infrastructure presents another challenge, says Prasad. “The pipeline capacity has to be there, the escape routes have to be there, the customers have to build receiving facilities, the utilisation in different sectors has to start increasing. We also need a clear environmental and regulatory and pricing framework.”
Because of these reasons, the company’s proposed floating LNG terminal off the coast of Kakinada, Andhra Pradesh, is on hold. The project is a joint venture in which Shell and Engie (formerly GDF Suez) own 26% each, while GAIL owns the remaining 48%. “The worst thing that can happen to anybody, public sector or otherwise, is to end up with a stranded asset. At the end of the day we are talking of a $700 million investment. We have to wait this out and see the demand come in and only then will the investment decisions happen,” Prasad says.
Some analysts feel Prasad’s lack of confidence in LNG isn’t justified. Subdued gas prices globally and limited availability have spurred imports. India is already the largest LNG importer after Japan, South Korea, and China and its import capacity over the next four years is expected to double to 45 million tonnes per annum (MTPA) against 22 MTPA currently, according to a report by Citi Research in October.
Though data shows that gas imports have been rising every year in the last five years, the overall consumption has almost remained unchanged since 2012-13. But the government’s “thrust to enhance gas consumption and stagnant domestic supply” should improve sentiment, says Deloitte’s Jain. “The fertiliser sector is a major driver of gas consumption, and proposed new plants and expansion of existing ones could be a positive indicator for new LNG capacities,” she adds.
Though Prasad is younger than the typical oil and gas CEO, and has only had five years of experience in India, he has the hard-nosed attitude of a seasoned executive. His receding hairline, soft-spoken manner, and professorial spectacles seem to lend gravitas to his persona. “Age historically has been a proxy for experience, resilience, and knowledge. But the world is changing so fast that the intensity of the experience and the knowledge that we gain no longer makes age a good proxy,” he says.
Prasad says the “language of the corporate world” needs to change. “We can’t get hung up on whether a person has worked three years or 20 years. I am very convinced that a 20-year-old today is going to have a much more intense experience than I had 15 years ago and that’s just how the world is,” he says.
While Prasad might think age isn’t an issue, do those old-heads in government feel the same way? He says that so far he hasn’t found it difficult to break the ice or build relations with government officials.
“What I have seen is that we are quite an inclusive society. Everybody will give you that first shot. People in the government have been very open and listened to what I say, which hopefully suggests that I did have something relevant to contribute,” says the Doon School alumnus.
Prasad’s first job, after graduating from the Georgia Institute of Technology, was at Altera, an Intel subsidiary. He quickly rose up the ranks to lead a team “to conceptualise, develop, and implement new business segments, products, and unique value propositions that were delivered by a project team across the world”.
He left Altera to gain a management degree from INSEAD, following which he joined Shell as a project leader in its management consultancy division in Singapore. In that role, he managed teams of consultants and business heads across the world to develop strategies, including business turnaround, identifying new markets, finding ways to accelerate growth, as well as pinpointing assets for divestment and swaps.
Shell is known for its “lifer” culture and grooms its executives over decades. Its global executive committee is mostly comprised of long-serving company men. Prasad, a climber who has worked his way up the ladder at Shell, seems to be in that mould.
His skill set, though, is somewhat different from his predecessors, Hilton and Mehta. Prasad says his management style is centred around empowering employees. “Almost 99% of the decisions are made by others and my role is to coach and guide them. That is my management mantra and it seems to be working,” he says with characteristic confidence.
Employees point to his friendly nature and sangfroid as his standout traits. Perhaps one of the reasons for his calm disposition is his love for yoga. Life is more than just work. “I enjoy my personal time,” he tells me, “I like to relax, medidate, do yoga, play with the kids, etc. To keep in shape, I like to run.”
Prasad’s mix of old company values and youthful appeal are perhaps the qualities Shell needs most at a time when new sources of energy are shaping the narrative. But the true test of his mettle lies in whether he can successfully disrupt the established order in an old-world business.