FROM OUR AUGUST 2004 SHELL NEWS ARCHIVE
Financial Times: Retired Shell engineer played central role
“the company had been engaged in accounting manoeuvres since 1997-98, including a flawed internal audit function”; “Shell had engaged as [group reserves auditor] a retired Shell petroleum engineer – who worked only part time and was provided with limited resources and no staff – to audit its vast worldwide operations.”
By Adrian Michaels in New York and Carola Hoyos and Andrew Parker in London
Posted 30 August 2004
US and UK regulators on Tuesday went several steps further than Royal Dutch/Shell in their dissection of what went wrong.
The Anglo-Dutch oil group had already presented the main findings of an internal investigation in April into its reserves debacle.
That report heavily criticised dismissed senior executives – Walter van de Vijver, the former head of exploration, and Sir Philip Watts, former chairman. But it had less to say on how the company had been engaged in accounting manoeuvres since 1997-98, including a flawed internal audit function. The US’s Securities and Exchange Commission and the UK’s Financial Services Authority delve into the origin of the problems. “
In 1998 Shell revised its internal [reserve] guidelines,” the SEC’s legal papers state, referring to a new technical methodology that was used to determine how much of the reserves in “mature” fields could be classified as “proved” and therefore likely to be fully exploited.
“This guideline revision added substantial volumes to Shell’s reported proved reserves. For instance, nearly 40 per cent of the total proved reserves Shell added in 1998 resulted from this guideline revision.”
The SEC is scathing about Shell’s advice that it had changed its mathematics, saying in its 1998 report only that estimation methods “have been refined”.
A key figure, named only by job title in the reports, is Anton Barendregt, group reserves auditor.
“Shell’s decentralised system required an effective internal reserves audit function,” both regulators write. “Shell had engaged as [group reserves auditor] a retired Shell petroleum engineer – who worked only part time and was provided with limited resources and no staff – to audit its vast worldwide operations.”
Mr Barendregt, the SEC says, “failed to act independently”, sometimes being more upbeat about reserves than local management. “At other times, solely to support booking proved reserves for otherwise uneconomic projects, he advised local management to submit development plans that were unlikely ever to be executed.”
He visited each operating unit only once every four or more years, and did not issue an unsatisfactory notice on whether any unit’s reserves met group guidelines.
But Mr Barendregt is portrayed also as someone trying to operate as well as possible in a bad system, repeating concerns about reserves in three internal annual reports from 2000 without prompting the company to write down reserves.
The FSA says his report on 1999 reserves, dated February 2000, stated that there were licence expiry problems that were jeopardising reserve viability. Proved reserve figures could be supported only through “significant aspirational upturns”.
The management of the exploration division, the SEC says, “forcefully rejected” ideas that its reserve replacement ratio – a key figure that can sway investor sentiment – for 1999 should be 37 per cent, “and instead caused Shell to report a 56 per cent RRR for that year”.
The report criticises the company for its slowness in correcting problems. It in some way clears the company’s non-executive directors, including the group audit committee, saying they were not provided with the right information.
Instead, the blame for slow reactions is mostly put on some of the senior executives no longer with the company. Again, they are named only by job title. By the end of 2001, the regulators state, in agreement with the company’s own investigation, that Shell’s failure to debook reserves had been identified as inconsistent with SEC rules.
But there is exasperation in the SEC’s complaint. By the summer of 2003, it said, Shell’s analysis of reserves exposures had made progress, but still no de-bookings had been recommended.
Andrew Procter, director of enforcement at the FSA, echoed this view: “The FSA views timely and accurate disclosure to shareholders as fundamental to maintaining the integrity of the UK’s financial markets.”
RELATED COURT DOCUMENTS ADDED BY JOHN DONOVAN
Exhibit 186 below, is email correspondence on 3 January 2004 from Frank Coopman, Chief Financial Officer, Shell Exploration and Production B.V. to Curtis Frasier of Shell International, which was copied to John Darley, SIEP-EPT. This was sent 6 days before the Shell reserves fraud was announced to a stunned world. Frank Coopman made it plain that the “independent” Group reserves auditor, Anton Barendregt (a retired former Shell employee who acted as the Group reserves Auditor on a part-time basis) was in fact “not completely independent”.
The following day, Anton Barendregt sent an email to Frank Coopman copied to John Pay, John Darley and John Bell admitting that with hindsight he should have been more “forceful” in respect of a correct formulation of Group guidelines in relation to avoiding conflict with SEC rules. He stated in his penultimate paragraph: “I realise that Curtis may not like my references to the guidelines. I seem to remember him saying that we should not say externally that our internal guidelines were different from the SEC’s. I do not see how we can maintain that pose in ernest. It would imply saying that either our guidelines were SEC compliant (which would be easily refutable lie) or that we had no guidelines at all, which would be unbelievable and also clearly not true.”
Exhibit 186: Confidential January 2004 Shell internal email correspondence involving Anton Barendregt, Frank Coopman, Chief Financial Officer, Shell International Exploration and Production B.V. plus Curtis Frasier and John Darley (3 pages)
CONFIDENTIAL: Shell note 30 Jan 2001 from Anton Barendregt, Group Reserves Auditor, to Lorin Brass Shell EP Director), Phil Watts (EP Chief Exec) , Dominique Gardy (CFO SIEP), John Bell, Remco Aalbers SIEP plus Egbert Eeftink (Partner, KPMG Accountants) and Stephen L. Johnson of PriceWaterhouseCoopers: REVIEW OF GROUP END-2000 PROVED OIL AND GAS RESERVES SUMMARY PREPARATION
Exhibit 166: CONFIDENTIAL: NOTE – 6 December 2002: From Anton Barendregt Shell Group Reserves Auditor to Frank Coopman (Shell EP CHIEF FINANCIAL OFFICER) Lorin Brass, Director Shell International EP- EPB and Luuk Karsten, General Manager, Shell Development Angola. Copied to Rob Inglis, Patrick Whittome, Woulter Smits, Liz Sturman, Barry Knight, Ian Hines, Derek Newberry Rahim Khan, Malcolm Harper, Jaep Nauta, John Pay, Chris Duhon, Han van Deidan (KPMG Accountants NV) and Brian Puffer of PriceWaterhouseCoopers: Subject:SEC PROVED RESERVES AUDIT – SHELL DEVELOPMENT ANGOLA, 25-26 Nov 2002 (11 pages)
Exhibit 167: CONFIDENTIAL: NOTE – 31 May 2002: From Anton Barendregt to Lorin Brass and Chris Finlayson (Managing Director, BSP) copied to Brian Straub, Rosmawatty Abd-Mumin, Salieh-Bostaman Zainal-Abidin, Martin Graham, Thomas Prudence, Peter Worby, Ben van den Bergh, Chris Kennett, Dominique Gardy, Rahim Khan, Malcolm Harper, Jaap Nauts, John Pay, Paul Tauecchio, Han van Delden (KPMG Accountants NV) and Stephen Johnson (PriceWaterhouseCoopers): Subject: SEC PROVED RESERVES AUDIT – BRUNEI SHELL PETROLEUM SDN BHD, 29 April – 3 May 2002 (17 pages)
Videotaped deposition of JOHN C. DARLEY, Director E&P Technology, Shell International E&P, taken by the Lead Plaintiff in New York, New York: November 16, 2006: Includes “MOST CONFIDENTIAL” Shell documents, internal and external confidential correspondence and Shell plans and strategy – 2000/2001/2002/2004, involving senior managers and group managing directors including: Walter van de Vijver, Malcolm Brinded, Linda Cook, David Greer, Brian Ward, John Haney, Fran Lohr, Anton Barendregt, Lorin Brass, Frank Coopman and many others.
Exhibit 69 JOHN C. DARLEY Deposition (275 pages)
Exhibit 70 JOHN C. DARLEY Deposition (25 pages)
Exhibit 71 JOHN C. DARLEY Deposition (24 pages)
Main Document 346 (42 pages)
Exhibit 73 JOHN C. DARLEY Deposition (13 pages)
Exhibit 74 JOHN C. DARLEY Deposition (12 pages)
Exhibit 75 JOHN C. DARLEY Deposition (13 pages)
Exhibit 76 JOHN C. DARLEY Deposition (12 pages)
Exhibit 77 JOHN C. DARLEY Deposition (13 pages)
Exhibit 78 JOHN C. DARLEY Deposition (50 pages)
Exhibit 79 JOHN C. DARLEY Deposition (50 pages)
Exhibit 80 JOHN C. DARLEY Deposition (50 pages)
Exhibit 81 JOHN C. DARLEY Deposition (50 pages)
Exhibit 82 JOHN C. DARLEY Deposition (50 pages)
Errata 83 JOHN C. DARLEY Deposition (35 pages)
Transcript of Videotaped Deposition of GORDON PARRY, Regional Business Advisor South Asia for Shell Exploration and Production and General Manager of Shell Pakistan (Mr Parry is now retired); taken Washington D.C. on September 12, 2006.
Exhibit 229: more confidential Shell internal email correspondence relating to Gordon Parry Deposition: involving Philip Watts, Ian Hines, Richard Sears, Chandler Wilhelm, Barry Knight, Derek Newberry, Robert Inglis, Grigmore Simon, Remco Aalbers, Peter Osborne, Maarten Wink, Heinz Rothermund, Susan Lovelock, Martijn Minderhoud, Anton Barendregt, Bea Jespers, Hans van Nues, Keith Lewis, Tim Warren and Matthias Bichsel. (27 pages)
Extract from Gordon Parry email to Robert Inglis and Grimore Simon (circulated to several other Shell colleagues) 6 Sept 2000:
Gents, I attach the final version of the note requested by Heinz at the last EPG meeting regarding reserves booking in Angola and Brazil.
This note was forwarded to Phil Watts who remarked, quote
“It is critical that the Angola reserves are booked this year or our EP scorecard will be shot” unquote:
“Herewith Phil’s reactions. We must pull this off aggressively! And we need on well, at least, as appraisal, whatever the purists say!”
Let’s be guided accordingly!