February 11th, 2006:

ANOTHER ANNOUNCEMENT ADDED TO OUR SHELL ARCHIVE FILE
Royal Dutch Petroleum Company and the “Shell” Transport and Trading Company, P.L.C. Pay $120 Million to Settle SEC Fraud Case Involving Massive Overstatement of Proved Hydrocarbon Reserves
FOR IMMEDIATE RELEASE
2004-116
Companies Simultaneously Settle a Market Abuse Case With the United Kingdom Financial Services Authority
Settlements Are the Result of a Comprehensive Joint Investigation Conducted by SEC and FSA
Washington, D.C., Aug. 24, 2004 — The U.S. Securities and Exchange Commission today announced settlement of an enforcement action against foreign-based oil companies Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, p.l.c. (together, Shell), in connection with their overstatement of 4.47 billion barrels of previously reported proved hydrocarbon reserves. Royal Dutch is a Dutch corporation headquartered in The Hague, while Shell Transport is an English corporation headquartered in London.
Shell agreed to settle these proceedings by consenting to a cease-and-desist order finding violations of the antifraud and other provisions of the federal securities laws, and by paying $1 disgorgement and a $120 million penalty in a related civil action the Commission filed in U.S. District Court. Shell also has undertaken to commit an additional $5 million to develop and implement a comprehensive internal compliance program under the direction and oversight of the Group's legal director. The companies settled without admitting or denying the Commission's substantive findings.
Shell simultaneously agreed to pay £17 million to settle a market abuse enforcement action initiated by the Financial Services Authority (FSA), the primary financial market regulator in the United Kingdom.
Commenting on the Commission's enforcement action, Harold F. Degenhardt, Administrator of the Commission's Fort Worth Office, said, “Shell's overstatements of its oil reserves, which occurred over an extended period, mandate a strong enforcement response, including imposition of significant civil penalties, to deter Shell and others from engaging in similar misconduct. As our investigation continues, we intend to focus on, among other things, the people responsible for Shell's failures.”
Added Spencer C. Barasch, Associate Administrator of the Commission's Fort Worth Office, “Accurate disclosures about proved reserves and reserve replacement are critical to investors in oil and gas companies. Today's enforcement action reinforces that public companies in this industry must ensure that their proved reserves disclosures are reliable and comport with Commission requirements.”
The Commission's staff has coordinated its investigation closely with the FSA and the Autoriteit Financiële Markten, the primary financial market regulator in the Netherlands.
“The degree of international and interagency cooperation in this case has been extraordinary and sets an important precedent for investors that regulatory efforts to police the financial markets will transcend national borders,” said Stephen M. Cutler, Director of the Commission's Division of Enforcement.
According to the Commission's order, Shell overstated proved reserves reported in its 2002 Form 20-F by 4.47 billion barrels of oil equivalent (boe), or approximately 23%. The order further concludes that Shell also overstated the standardized measure of future cash flows reported in this filing by approximately $6.6 billion. Shell corrected these overstatements in an amended filing on July 2, 2004, which reflected the degree of Shell's overstatements for the years 1997 to 2002.
Year Proved Reserves Overstatement % Overstatement Standardized Measure Overstatement % Overstatement
1997 3.13 boe 16% N/A N/A
1998 3.78 boe 18% N/A N/A
1999 4.58 boe 23% $7.0 billion 11%
2000 4.84 boe 25% $7.2 billion 10%
2001 4.53 boe 24% $6.5 billion 13%
2002 4.47 boe 23% $6.6 billion 9%
The Commission's order also finds that, during this period, Shell materially misstated its reserves replacement ratio (RRR), a key performance indicator in the oil and gas industry. Had Shell properly reported proved reserves, its RRR for the five-year period 1998 through 2002 would have been 80%, rather than the 100% Shell originally reported, and its annual and three-year RRR over this span would have been as follows.
Year 1-Year RRR 3-Year RRR
Original Restated Original Restated
1998 182% 134% n/a n/a
1999 56% -5% n/a n/a
2000 69% 50% 102% 60%
2001 74% 97% 66% 48%
2002 117% 121% 87% 90%
2003 n/a 63% n/a 94%
As the Commission's order outlines, Shell's overstatement of proved reserves, and its delay in correcting the overstatement, resulted from its desire to create and maintain the appearance of a strong RRR, the failure of its internal reserves estimation and reporting guidelines to conform to SEC requirements, and the lack of effective internal controls over the reserves estimation and reporting process. These failures led Shell to record and maintain proved reserves it knew or was reckless in not knowing did not satisfy SEC requirements, and to report for certain years a stronger RRR than it actually had achieved. Indeed, Shell was warned on several occasions prior to the fall of 2003 that reported proved reserves potentially were overstated and, in such critical operating areas as Nigeria and Oman, depended upon unrealistic production forecasts. In each case, Shell either rejected the warnings as immaterial or unduly pessimistic, or attempted to “manage” the potential exposure by, for example, delaying de-booking of improperly recorded proved reserves until new, offsetting proved reserves bookings materialized.
In accepting Shell's settlement offer, the Commission took into account Shell's cooperation with the staff's investigation and the remedial actions Shell has undertaken, as outlined in the order.
The Commission's investigation continues as to other individuals and entities.
For further information contact:
Harold F. Degenhardt (817) 900-2607
Spencer C. Barasch (817) 978-6425
David Peavler (817) 978-1417 read more

AN ANNOUNCEMENT THAT WE MISSED
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FOR IMMEDIATE RELEASE
MONDAY, NOVEMBER 10, 2003
WWW.USDOJ.GOV
CIV
(202) 514-2007
TDD (202) 514-1888
JUSTICE DEPT. CIVIL FRAUD RECOVERIES TOTAL $2.1 BILLION FOR FY 2003
FALSE CLAIMS ACT RECOVERIES EXCEED $12 BILLION SINCE 1986
WASHINGTON, D.C. – Recoveries in suits and investigations of fraud against the United States for the fiscal year ending September 30, 2003, tallied a record $2.1 billion, the Justice Department announced today. This is a 75 percent increase over the prior year's recoveries ($1.1 billion) and brings total recoveries to over $12 billion since Congress substantially strengthened the civil False Claims Act in 1986.
“The record recoveries in civil fraud cases demonstrate this Administration's unwavering commitment to combat fraud and to ensure that tax dollars are well spent,” said Peter D. Keisler, Assistant Attorney General for the Department’s Civil Division. “It also attests to the contributions of whistle-blowers who report fraud and the extraordinary and tireless efforts of the civil servants from Justice's Civil Division, the United States Attorneys' Offices and other agencies that investigate and prosecute these cases.”
Mr. Keisler also paid tribute to Senator Charles Grassley of Iowa and Representative Howard L. Berman of California who sponsored the 1986 amendments to the False Claims Act, the government's primary weapon to fight fraud against the government. “Without this important legislation strengthening the act and, in particular, the qui tam provisions that give everyone who comes in contact with a federally funded program a stake in reporting fraud, such recoveries would not have been possible.”
Of the $2.1 billion, $1.48 billion is associated with suits initiated by whistle-blowers under the qui tam provisions of the False Claims Act. The qui tam provisions authorize individuals, known as “relators,” to file suit on behalf of the United States against those who have falsely or fraudulently claimed federal funds. Such cases run the gamut of federally funded programs from Medicare and Medicaid to defense contracts, gas leases and agricultural subsidies. If the United States intervenes in the action, the person filing the suit can recover from 15 to 25 percent of any settlement or judgment attributable to the fraud identified by the whistle-blower. The percentage increases up to 30 per cent if the United States declines to intervene and the whistleblower pursues the action alone. In the fiscal year just ended, whistle-blowers recovered over $319 million in rewards under the Act.
As in the last several years, health care fraud accounted for the lion's share of recoveries-$1.7 billion. This number includes both whistleblower claims and those initiated by the United States in independent fraud investigations. The Department of Health and Human Services (HHS) reaped the biggest recoveries, largely attributable to its Medicare and Medicaid programs. Substantial recoveries were also made for the Office of Personnel Management which administers the Federal Employees Health Benefits Program, the Department of Defense for its TRICARE insurance program, the Department of Veterans Affairs and the Railroad Retirement Board.
Outside the health care arena, defense procurement fraud accounted for $299 million in recoveries and fraud in connection with gas leases with the Department of the Interior totaled another $49 million.
Among the Department's largest recoveries in fiscal year 2003 were:
•$641 million from HCA Inc. (formerly known as Columbia/HCA and HCA – The Healthcare Company) for cost report fraud, the payment of kickbacks to physicians and overbilling Medicare for HCA's wound care centers. This settlement concluded litigation in numerous qui tam lawsuits as well as separate investigations initiated by the government. Along with an earlier civil settlement and criminal guilty plea reached in 2000, as well as a related administrative settlement with HHS, HCA has paid the United States $1.7 billion, with whistleblowers receiving a combined share of $154 million-by far, record recoveries both by the United States and whistle-blowers.
•$382 million from Abbott Laboratories and its Ross Products Division. Abbott is the first combined civil settlement and criminal conviction arising from “Operation Headwaters,” an undercover investigation by the Federal Bureau of Investigation, the U.S. Postal Inspection Service and the Office of the Inspector General for HHS, in which federal agents created a fictitious medical supplier known as Southern Medical Distributors. During its operation, various manufacturers, including Ross, offered kickbacks to undercover agents to purchase the manufacturers' products and then advised them how to fraudulently bill the government for those items. In addition to federal Medicare and Medicaid recoveries, the states recovered $18 million in state Medicaid funds in connection with the federal government's claims and an additional $14.5 million on claims the states pursued alone. Abbott subsidiary C G Nutritionals also paid $200 million in criminal fines.
•$280 million from AstraZeneca Pharmaceuticals, LP, to resolve allegations that AstraZeneca conspired with health care providers to charge Medicare, Medicaid and other federally funded insurance programs for free samples of its prostate cancer drug, Zoladex, and for otherwise inflating the price of the drug in violation of the Prescription Drug Marketing Act. The whistleblower's share of this settlement was $47.7 million.
•$191 million from Northrop Grumman to resolve three separate fraud investigations. In the first, Northrop Grumman Space & Mission Systems Corporation paid $111 million as successor to TRW Inc. to resolve allegations that TRW fraudulently overcharged the government on Department of Defense and National Aeronautics and Space Administration contracts. The whistleblower's share of this settlement was $27.2 million. In the second and third, Northrop Grumman Corporation paid $60 million and $20 million, respectively, to resolve allegations of mischarging and selling the Navy defective military equipment. The former settlement involved Newport News Shipbuilding which Northrop Grumman acquired in November 2001.
•$143 million from Bayer Corporation to resolve a whistleblower's allegations that Bayer defrauded the Medicaid and Public Health Service programs by relabeling products sold to a health maintenance organization at deeply discounted rates and then concealing the discounts to avoid paying rebates, in violation of the Medicaid Rebate program. In addition, Bayer paid $108 million to reimburse state Medicaid programs for the same conduct.
•$47 million from SmithKline Beecham Corporation, doing business as GlaxoSmithKline, to settle claims similar to those against Bayer. GlaxoSmithKline paid an additional $40 million to reimburse state Medicaid programs and Public Health Service entities.
•$51 million from Tenet Healthcare Corporation and Tenet HealthSystems Hospitals, Inc. to settle government allegations that Tenet's Redding, California facility performed unnecessary cardiac procedures that were then billed to Medicare, Medicaid and TRICARE. In addition, Tenet paid nearly $3 million to reimburse California's Medicaid funds.
•$49 million from Endovascular Technologies, Inc., a subsidiary of Guidant Corp., to settle the government's allegations that Endovascular Technologies failed to report to the Food and Drug Administration thousands of adverse incidents involving its “Ancure” cardiac device. The failure resulted in the submission of tens of millions of dollars of false claims for Medicare, Medicaid and VA benefits for procedures involving the device. In several instances, the device was linked to patient injuries and deaths. Endovascular Technologies also paid $43.4 million in criminal fines and forfeitures.
•$49 million from Shell Oil Company to settle allegations that Shell improperly vented and flared gas from various offshore leases with the Interior Department. The suit also alleged that Shell underreported and underpaid royalties on the vented and flared gas. In 2000 and 2001, Shell paid the United States $56 million and $110 million to settle two earlier cases involving underpaid royalties owed the United States on natural gas and oil, respectively.
•$38 million from Lockheed Martin Corporation to settle claims that Lockheed Martin failed to provide complete, accurate and current cost and pricing data as required by the Truth in Negotiations Act, when it bid on a foreign military sales contract under the Air Force's Low Altitude Navigation and Targeting Infrared for Night program, known as LANTIRN. The United States' complaint alleged that the inaccurate data concealed a scheme to create additional profit which could be used to offset overruns on another Air Force contract.
http://www.usdoj.gov/opa/pr/2003/November/03_civ_613.htm read more

This is an article we missed… LESS WE FORGET WHAT HAPPENED..
This article appeared in the May 7, 2004 issue of Executive Intelligence Review.
Who Will Be Next?
by Lothar Komp
“Shell shock” has hit the British Isles. The almost 100-year-old British-Dutch oil giant, Royal Dutch Shell, with 115,000 workers worldwide and an annual turnover of 35 billion euros, has had to acknowledge, in a series of reports, that it has pulled the wool over the eyes of its shareholders and creditors for years.
About one-fourth of the oil and gas reserves which have been reported in Shell's books, have existed only in the fantasy of the members of the board. And each barrel of estimated reserves represents an imputed income stream for the company in the future, which influences the stock value of an oil concern even today, and at the same time serves as collateral for credits and other financial transactions.
Already back in January, Shell Chairman of the Board Sir Philip Watts was sent into the desert, after the company's first admission: that it had vastly overestimated its own oil and gas reserves. The chief of exploration for Shell, Walter van de Vijver, was also fired at that time. At the end of March and again on April 19, Shell had to correct its reserves downward again. With the third such event, finance director Judy Boynton lost her job.
But the real shocker, which also came on April 19, was something else: The American law firm Davis Polk and Wardwell published excerpts from the 463-page report, concerning the background to Shell's faked reserve estimates, which Shell's new leadership had commissioned in January. And even the few excerpts of this report which were made public, hit the British media like a bombshell. So great was the shock, that even the continuing sex scandals of Britain's leading soccer idol, David Beckham, had to be pushed back to the inside pages for a few days. It became clear, that the Shell board of directors had had full knowledge that the figures were faked, for at least two years.
'Sick and Tired of Lying'
A series of e-mails between the exploration department head and the company's chief executive were cited in the report. In November 2003, Walter van de Vijver sent an e-mail to chairman Philip Watts, saying: “I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings.”
Other documents show that van de Vijver already in February 2002 was fully aware that Shell's reserve estimates were far too high. It has also been revealed that top executives at Shell had destroyed certain documents in an attempt to cover up the fraud.
But appearances had to be kept up. According to the report, Shell's executive was playing for time. They hoped that somehow, sometime, a miracle would occur to provide all those missing reserves. As is now known, the amount of new explorations of oil and gas reserves per year at Shell, in Angola and elsewhere, had fallen to only 61% of annual production in recent years. Up to the last minute, chairman Watts wanted to keep this secret from the firm's financiers. On May 28, 2002, he had written to van de Vijver, to do whatever was necessary—obviously including faking the figures—to come up with an exploration/production ratio of at least 100% in Shell's official reports.
The dimensions of Shell's fraud, even after those of Enron, Parmalat, etc., are enormous. The faked oil and gas reserves, according to the latest tally—further corrections are not to be excluded—amount to 4.5 billion barrels. If one assumes, for a rough estimate, that the fraud only concerns oil reserves, and not production, and takes $35 per barrel as the basis for calculating Shell's “accounting errors,” then this yields a sum of a good $150 billion. By comparison, the current total market value of Shell shares, which imploded at the beginning of the year, is 140 billion euros.
The rating agencies have already reacted by downgrading Shell. American shareholders' groups have already presented a class action suit. American attorneys are preparing charges against Shell, for criminal machinations.
Empty Promises, Not Production
Whatever the further destiny of Royal Dutch Shell might be, the significance of the “British Enron” goes beyond the destiny of the company itself, in two ways.
First, the incident at Shell is a symptom and a symbol of the condition of the worldwide financial and economic system: As a result of insufficient real economic re-investments, the real value of operating, productive capacities in the “formerly industrialized” countries is being burned out. Financial values are promises on future income, which at least in part must be paid for through real economic activity. As soon as it becomes apparent, however, that a large portion of the financial values are only “empty promises,” then a financial collapse, of a firm or a financial system, is inevitable. In the meantime, one can buy time, through the central banks, which print money and pump it into the financial markets—and through companies adopting the practice of falsifying their books.
On the other hand, Shell is no more a unique case than were Enron, WorldCom, or Parmalat. Hundreds of big companies, not least in the financial sector, are presently in a precarious state, which is at least as bad as Shell's. It is just that no one has noticed it yet. read more

By John Donovan

The legal preamble to a recent important case being decided by the US Supreme Court spells out the shareholder/ownership of a number of major companies within the Royal Dutch/Shell Group.

For anyone who was unsure about the outcome of the merger brought about by the reserves fraud, The Shell Transport and Trading Company – formally the British 40% partner in the Royal Dutch/Shell Group – is now owned by Royal Dutch Shell Plc. Although Royal Dutch Shell Plc is a UK registered company, it has its HQ in The Netherlands and is 60% owned by the Dutch. read more

Need to Know
Russia’s Energy Ministry has postponed costs approval of Royal Dutch Shell’s Sakhalin-2 project because it wants more information on why costs have doubled to $20 billion (£11.5 billion).
De Beers, the world’s biggest diamond group, which reported a 3 per cent rise in full-year pre-tax profits to $1.1 billion, said that its retail joint venture with LVMH, the French luxury goods company, has failed to meet expectations.
AngloGold Ashanti, the goldminer, has given warning of lower output this year and also said that its gold reserves had fallen 20 per cent. read more

Liz Ford
Saturday February 11, 2006
Students and graduates from across Europe have decided that oil giant Shell has the X factor – at least when it comes to the recruitment section of the multinational's website.
A poll conducted by the Swedish communications company Potential Park voted it the best corporate careers website for its ease of use, advice and an online application form that didn't cause too much frustration. Shell, which was ranked 11th in last year's survey of more than 4,000 students and recent graduates from 12 European countries, pushed 2005's top dog, ABB, into second place, followed by UBS, Siemens and Procter & Gamble. Intel and AstraZeneca made it into the top 30 for the first time this year. The key to successfully selling your company to graduates online is following this simple formula: information x time management x feedback/interactivity x design + wow factor. Easy, really. read more

Investment: Manager Stephen Whittaker is relentlessly upbeat about both banks and property shares, says Patrick Collinson
Saturday February 11, 2006
Don't fret about a slump in house prices – and ignore the doomsters on consumer spending. Instead, prepare for the FTSE 100 to smash through the 6,000 level, with shares in banks and property developers leading the way.
That's the forecast from the head of investment at one of Britain's biggest unit trust companies, New Star Asset Management. Stephen Whittaker is joint chief investment officer at New Star, recruited from Invesco Perpetual in 2002 to replace Alan Miller as manager of the UK Growth fund.
Mr Miller is currently entertaining newspaper readers with his appeal against a £5m divorce pay-out to his ex-wife, Melissa. But although he has been dubbed a “City tycoon” in some reports, his early days running New Star UK Growth were dismal.
The fund raised £185m at launch in July 2001, but Mr Miller piled into shares poised for an economic recovery – which failed to materialise. By the time he quit running the fund, it was ranked 248 out of 290 in its sector and had lost nearly a third of its value.
Mr Whittaker's reign has been more successful, with the fund up 123.7% since January 2003. Last year was only middling – his holdings in stocks such as Rolls-Royce and BAE Systems leapt ahead, but he missed out as oil companies soared. Investors who have enjoyed gushing profits at BP and Shell are heading for a fall, though, he believes.
“In 2006, I would expect to see a significant correction in oil and mining stocks. The much-vaunted collapse in consumer spending is unlikely. The negativity has centred on rising energy and resources prices, which are unsustainably high. I would not be surprised if UK interest rates fall early in the year, and this could boost consumer spending.”
He says the UK economy is essentially robust, with more jobs created in the year to November 2005 than lost, and wages beginning to rise faster than property prices. Lower interest rates will improve affordability, one reason he's a holder of property company John Laing and developers Barratt. He also likes lenders HBoS and Kensington.
British shares are generally cheap in comparison to US and European stocks, he says, which is one reason why so many UK companies are the subject of foreign bids. Most companies are meeting or beating profit expectations, and many are “awash with cash”. There has been a record return of capital to shareholders from share buybacks, plus cash has poured in from bids such as Telefonica's £18bn for 02 and Saint Gobain's £4bn for BPB.
That money has to go somewhere, and with fewer shares to choose from (what Mr Whittaker calls the “de-quitisation of the FTSE All-share) and money sloshing around, then the pressure on prices will be up.
His big bet is that, in such a benign environment, bank shares will forge ahead. Royal Bank of Scotland is his biggest holding, despite the fact that its share price has been flat for years. But don't bank on it staying that way.
[email protected] read more

By Charles Batchelor
Published: February 11 2006
Like an athlete on steroids, the London stock market has been pumping itself up on oil and gas industry profits. Record-breaking numbers from BP and Shell in the past two weeks have highlighted the impact that a soaring oil price is having on the industry's profitability.
At the same time, the seemingly insatiable demand for copper, zinc and other metals by the booming economies of China and India has made mining one of the fastest-growing sectors in the FTSE 100. It now accounts for just under 7 per cent of the FTSE 100 index compared with just 1.6 per cent 10 years ago.
In the nearly three years since the market touched bottom on March 12, 2003, the FTSE 100 has risen a respectable 75.6 per cent. A revival of takeovers has fuelled some of this increase but much has come from an upsurge in energy and commodity prices.
The FTSE 100 oil and gas sector has added 83 per cent, while mining – a far smaller sector in terms of market capitalisation – has raced ahead by 189 per cent.
But for all the euphoria over these developments – BP plans to return up to $65bn to shareholders over the next three years – there are concerns that the growing dominance of the oil and gas sector is leading to an undue concentration of risk and making it harder for investors to “read” the trends.
“By buying a FTSE 100 tracker you are hostage to the fortune of a handful of companies,” says Phil Wagstaff, managing director for retail marketing and investments at New Star Investment Funds. “If these companies fail to perform, you are stuck with them – and a poorly performing fund.”
The oil and gas sector now accounts for just under 21 per cent of the FTSE 100 index, a similar figure to the banks and followed by pharmaceuticals with 9.2 per cent.
These three sectors account for half of the top 100 stocks by value and dominate an increasingly polarised index. The recent rise in the oil price has had a big impact but the market's increasing concentration represents a long-term trend.
Ten years ago the five largest sectors – banks, pharmaceuticals, oil and gas, telecommunications and media – comprised less than 50 per cent of the index and there was far less bunching at either end of the index. In 1996, 10 sectors had a share of 3 per cent or more; today only seven sectors exceed this threshold.
Some long-established sectors of the market have shrunk almost to invisibilityover the past decade. The steepest declines were achieved by general insurance,which has gone from a 2.4 to a 0.26 per cent weighting in the broader FTSE All-Share index and automobiles, down from 0.83 to 0.16 per cent, according to Fidelity, the fund manager.
“I am slightly concerned that the FTSE is such a distorted index,” says Tom Walker, manager of the Martin Currie Portfolio Investment Trust.
“If you have a large percentage of the benchmark in BP and Shell, that is a lot of absolute risk. I am still feeling positive about oil but having more than 5 per cent in any one stock increases your risk if anything went wrong.”
Investment trusts are prevented by legislation from putting more than 15 per cent of their assets into any one stock but many impose much lower internal limits on their managers so they would be prevented from going overweight on BP, which accounts for about 9.6 per cent of the market, and Shell whose shares account for 8.9 per cent.
The limits on open-ended funds such as unit trusts are even lower, with these funds prevented from holding more than 10 per cent of their portfolio in any one stock.
But for many managers the issue is not one of increasing their exposure to a particular stock or stocks but of reducing their risk. “There are people with half of their money in the top 10 stocks,” says Richard Marwood, an investment manager at Axa.
“People are saying: 'We won't take our full exposure to the benchmark, we will cap it at 5 per cent.' We are managing money on that basis.” Axa has a limit of 4.5 per cent exposure to any single stock on some of the money it manages, he adds.
FTSE, the index provider that is part-owned by the Financial Times, has responded to demand for an index that takes account of the increasing concentration of value in a small number of stocks.
It launched the FTSE Cap 100 5 per cent Index and the FTSE Cap All-Share 5 per cent Index last June. Four stocks – BP, HSBC, GlaxoSmithKline and Royal Dutch – have all had absolute weightings in the FTSE 100 above 5 per cent recently. But within the capped index, BP was 5.12 per cent (the index is calculated quarterly and can exceed the cap temporarily), Royal Dutch was 5.1 per cent, HSBC was 4.96 per cent and Glaxo was 4.79 per cent.
But launching indices that attempt to modify market developments is not without its problems. “We take the view it is good to have simplicity and clarity,” says Walker. “It is no good having benchmarks that no-one can relate to.”
The flipside to the strong performance of oil, gas and mining stocks is the relative weakness of some other sectors. The whole market has benefited from a recovery of investor confidence in equities but stripping out oil, gas and mining shows a 68.8 per cent rise in the market since March 2003, compared with a 75.6 per cent rise before this adjustment.
“The retailers and the banks were underperformers last year,” says Richard Hunter, head of UK equities at Hargreaves Lansdown. “Some of the retailers did well at Christmas and we are just getting into the banking reporting season proper. If they can show they have turned a corner that will be two negatives that have been removed.”
The telecoms sector, too, has struggled to maintain its early excitement and even the mobile telecoms companies are increasingly being seen as cash-rich utilities.
Cable & Wireless and Vodafone have performed poorly over the last 16 months. Food producers have also underperformed the wider market.
Change in the composition of the stock market is nothing new and reflects technological developments and wider economic trends. For instance, at one stage in the 19th century, the market was dominated by railway companies.
Even the dominance of the oil and gas stocks is not new. “In the late 1960s the sector accounted for 30 per cent of the market,” says Simon Ward, investment strategist at New Star.
Other, admittedly much smaller, regional stock markets have been dominated by a handful of large stocks. Nokia, the mobile phones manufacturer, makes up the largest chunk of the Finnish stock market.
A problem for long-term investors in the UK stock market is that they may still be clinging to the idea that its constituents are dependent on the fortunes of the UK economy. But not only are large stocks such as the oil majors increasingly subject to global developments, more companies with very little UK connection are making their appearance. Tougher US regulations are making London the listing of choice for foreign companies.
“There is an old-fashioned perception that the FTSE reflects the UK economy,” says Frederic de Merode, senior strategist at Fidelity International. “An investor might see GDP growth or consumer activity slowing and decide to sell out of his UK stocks. In fact foreign earnings could mean that the company was performing better.”
And while the purchase of a fund that tracked the FTSE 100 would expose the investor to global economic trends, it might limit his or her exposure in terms of the sectors covered.
For a broader coverage, the investor would need to invest, either directly or through funds, in overseas markets.
“By only investing in the UK market, you gain protection from currency movements but you would need to diversify more to take advantage of trends across Europe and the world,” says de Merode. read more

The Times: Money
February 11, 2006
WITHIN a few days of each other, BP and the newly merged Royal Dutch Shell reported the biggest and second-biggest profits ever recorded by British companies. Only the order of precedence brought surprise.
When Shell came up with $22.9 billion (£13billion), analysts assumed that its record would be short-lived. This was, after all, a company that had automatically been tagged as “troubled” ever since the previous board’s lax definitions of proven oil and gas reserves had come to light.
In the event, BP came up a few hundred million of profit short. Its shares were caned even more severely than Shell’s had been, when the Anglo-Dutch group’s profits were compared unfavourably with the American Exxon Mobil.
These short-lived bouts of selling reflected profit-taking as much as disappointment. On either count, there was little to complain about, apart from fear of political assaults.
Both companies have performed roughly in line with the all-share index over the past year. Most of their outstanding performance came in 2004. Fourth-quarter profits may have suffered from sharp fluctuations in oil prices during the autumn, but BP’s one-off costs, mainly for accidents and disruptions at its North American refineries, should not damage future earnings.
Either way, investors are cautiously sceptical about the supposed new era of expensive oil, noting that prices have been cyclical ever since Opec was formed. Both BP and Shell shares now trade at less than ten times likely 2006 earnings per share, below the market average. New paradigms tend to prove far from permanent.
Up to a quarter of the oil multinationals’ 2005 profits and most of the growth were accounted for by high and rising oil prices. Brent crude peaked at $67 a barrel in August, fell to $53, and then scrambled back above $60.
Unless oil prices fall dramatically, integrated groups such as BP and Shell will benefit in the first half of the year of higher year-on-year oil prices. But it will become harder to sustain progress later. The ratings allow fully for that.
These are also companies that, by being integrated from geological research to garage forecourts, can make decent profits and pay decent dividends no matter what happens to oil prices. Shell, which has traditionally been stronger in marketing than oil production, is naturally the steadier of the two but, under Lord Browne of Madingley, BP has taken strides in marketing its brand globally as well as strengthening reserves and finding as much oil as it sells.
Like top banks, BP and Shell both have great consumer and business franchises as well as the resources to mend any weaknesses in their armoury. Their top priorities are to sustain these franchises and avoid terrible decisions.
In the latest McKinsey on Finance quarterly, the consultants argue that the greatest risk facing the top five companies is of spending too much of their estimated £70 billion of 2005 cashflow on projects that are only viable if oil prices stay high. Lord Browne clearly agrees. For instance, he ruled out bidding for the Spanish Repsol.
BP claims to have stakes in more oil developments than its rivals but is also pledging enormous share buybacks, bigger if oil prices stay high.
In this case, buybacks are justified because short-term growth expectations are low and reductions in capital will help to sustain dividend increases (10 per cent for 2005).
On top of its peculiar embarrassment over its reserves, Shell is still replacing only three quarters of the oil and gas it is using.
It will give higher priority to exploration and development, but not on markedly more extravagant assumptions about future oil prices.
With luck, Shell and BP will not jump too deeply into high-cost alternative energy, as McKinsey suggests, because that would gear profits more highly to oil and gas prices. Experience tells them to stick to oil and gas. That is what has made their dividend yields, which are above 3 per cent, among the safest and the most likely to outpace inflation. read more