Financial Times: Royal Dutch/Shell will not be prosecuted for overstatement
“Shell self-reported the material mis-statements of its proved oil and gas reserves to the public,” US Attorney David Kelley said, in explaining the decision to go easy on the company.:
Thursday 30 June 2005
By Sheila McNulty in Houston
Royal Dutch/Shell will not be prosecuted for overstating its proved oil and gas reserves, for 2002 and prior years, by about 23 per cent, the US government ruled yesterday.
The decision ended fears that Shell, which has been under federal investigation since disclosing the overstatement last year, might have been convicted and fined.
That would probably have forced another round of selling in the company’s shares, which plunged last year when the overstatement first emerged.
“Shell self-reported the material mis-statements of its proved oil and gas reserves to the public,” US Attorney David Kelley said, in explaining the decision to go easy on the company.
He further noted that Shell, Europe’s second-biggest oil company, had provided “full co-operation” in his investigation. In addition, Shell had agreed to a $120m (£66m) civil penalty settlement and “to take substantial remedial actions”.
Those actions included enhancing the accuracy of its reserves reporting and compliance, including a commitment to spend $5m to develop and implement a comprehensive corporate compliance programme.
In addition, Mr Kelley said, criminal prosecution would have had a “negative effect” on Shell’s “innocent employees and legitimate activities”. This pointed to a kinder, gentler approach by the Department of Justice, whose critics have accused it of being overzealous in an attempt to combat corporate crime in the wake of the fraud perpetrated on investors by Enron.
The new approach could be seen to have been motivated by the US Supreme Court’s recent decision to overturn the conviction the Department of Justice won against Andersen in the biggest Enron-related lawsuit. That conviction forced one of the US’s top accounting firms out of business, costing its employees their jobs and reputations.
Shell’s reaction was reserved. “We’re aware of the decision taken by the Department of Justice,” said Lisa Givert, Shell spokeswoman. “We’re pleased that our co-operation has been appreciated.”
Between January and May 2004, Shell disclosed that it had overstated its proved hydrocarbon reserves reported as of the end of 2002 by about 23 per cent. In 2004, these overstated reserves were re-categorised by Shell to comply with the definition of “proved” reserves set forth by the US Securities and Exchange Commission.
That led to the investigation by the US Attorney’s Office into how these reserves came to be booked by Shell and reported to the public in the company’s annual filings with the SEC.