Investigators say Royal Dutch-Shell officials in sights

Houston Chronicle: Probe aims at top: Investigators say Royal Dutch-Shell officials in sights

By TOM FOWLER

Posted 25 August 2004

U.S. and British securities regulators are focusing on senior Royal Dutch-Shell officials and the roles they may have played in the oil giant’s massive overstatement of reserves.

The Securities and Exchange Commission and England’s Financial Services Authority said Tuesday they are now pursuing senior officials from the company related to the matter, which led to numerous shareholder lawsuits and a Justice Department investigation.

“As our investigation continues, we intend to focus on, among other things, the people responsible for Shell’s failures,” said Harold Degenhardt, administrator of the SEC’s Fort Worth office.

The SEC investigation could lead to civil charges against individuals, while only the Justice Department can file criminal charges.

It does not appear the investigations are looking at officials based in Houston, headquarters for Shell Oil Co. and about 13,000 employees.

The statements are part of regulatory announcements formally approving more than $150 million in previously announced settlements over what British officials called “unprecedented misconduct” in overstating reserves.

In January, the Royal Dutch-Shell Group of Companies downgraded the equivalent of 3.9 billion barrels of oil, or 20 percent of its energy reserves, from proven status to less certain production prospects. That number later grew to the equivalent of nearly 4.5 billion barrels.

The company blamed the errors on individuals disregarding or misapplying SEC guidelines, executives and employees who discouraged the “debooking” of reserves that were booked improperly and a failure to provide adequate support to auditors who oversaw the reserves.

The SEC said the errors were part of a conscious effort at Shell beginning in 1998 to find a way to make its reserves look better when compared to American rivals.

Officials changed their reserve estimation methods but provided scant notice to the public, the SEC claims.

Tuesday’s announcements did not name officials, but the SEC filing noted the actions of a number of Shell employees by title. It noted that the chief executive officer of the exploration and production business, at that time Walter van de Vijver, said in an October 2002 e-mail, ” … If I was interpreting the disclosure requirements literally … we would have a real problem.”

Both van de Vijver and the recipient of the e-mail, former Shell Chairman Phillip Watts, were forced to resign from the company earlier this year.

The filing also mentioned a number of instances where individuals directly responsible for overseeing the reporting and auditing of Shell’s reserves failed to do their jobs properly, including the former group reserve auditor and group reserves coordinators.

The auditor, a retired Shell engineer who worked part-time and with limited resources, failed to act independently and is blamed in the SEC report for helping to facilitate the questionable booking of reserves.

The auditor later issued a number of reports, however, pointing out the reserves problems and pushed for the debooking of certain reserves.

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