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Desperation led to Shell’s plotting to exploit 9/11 attacks

Screen Shot 2014-02-10 at 16.29.29BUILD UP TO SHELL RESERVES SCANDAL: Comments by leading Shell execs: “…the market will want to know whose head is going to roll for what they will see as blatant deception.”; “this is potential dynamite for management credibility and the share price”; “…how you have to break the detail of this news in September, assuming that there is indeed a firestorm of hostile comment…”; “why should we have any more confidence in these numbers than the previous ones…”; “…please don’t let the people who have got us into this mess be under any illusion that there is an ‘easy’ answer…”; “You will blight the relative TSR of the Group and everyone’s score card for years to come”; ‘So “blaming”’ it on field declines and slippage on growth in emerging markets is the least we should do in order to downgrade expectations.’

By John Donovan

When we published an article about Shell executives plotting to exploit the 9/11 attacks, we said that the motive behind the discussion was well founded internal and external concern about Shell production growth and problematic reserves.

We now publish Shell internal emails circulated in the months leading up to 9/11, which provide proof of the degree of concern over these issues that led to Shell executives considering such a distasteful strategy to manipulate the markets.

Some extracts:

From Walter van de Vivjer “vol growth” email 9 July 2001

“This obviously needs a lot of debate and deep soul searching and pressure in the organisation.”

At the same time 1)we have not delivered in 2000/2001 and the first roll-up of numbers for 2002-2006 look very discouraging

“-damage would be far more severe if we had not discounted some of the growth volumes in the externally quoted numbers.”

From Stephen Hodge “vol growth” email dated 9 July 2001

“I support everything that Simon writes on this and would add that the EP’s systemic inability to realise that what they have said before is as important as what they say now is profoundly depressing.”

In short 2% not 5% production growth is a disaster unless there are good reasons for it, and the market will want to know whose head is going to roll for what they will see as blatant deception.”

From Simon Henry “vol growth” email dated 9 July 2001

The external consequences of backing away publicly from the 5% / $12 bin linkage are not good. I am obliged to mention this point tomorrow in CMD as the 2% figure was in the CMD paper, but I cannot comment on the underlying details other than to reinforce the fact that this is potential dynamite for management credibility and the share price. 

From Walter van de Vijver “Production Growth” email dated 1 August 2001

The facts are staring us now in the face and we need to deal with it professionally (utilizing the expertise of you et al) and with the sense of reality that does not create a real credibility problem in 2002.

From Stephen Hodge “Production Growth” email dated 1 August 2001

I am thinking now about how you have to break the detail of this news in September, assuming that there is indeed a firestorm of hostile comment after tomorrow (as, unfortunately, we expect)

But to use overall decline as an explanation to the extent used in your message below is going to cause really serious collateral damage. Before we use it we need answers on which fields are declining faster than we expected, why are there no offsetting increases, and why should we have any more confidence in these numbers than the previous ones, which came with full weight and authority of the EP organisation.

In short I feel that we don’t have anywhere near a clear explanation yet of what has gone wrong except to the extent that we can see that some major projects are going slower; so that we should not say more than this

Fundamentally if you are to retain credibility, I think you have to explain what has gone wrong almost of a field by field and project by project basis and in so doing demonstrate complete mastery of the issue. Conversely the worst thing of all for credibility is to fall short on promises and project that you don’t quite know why it has happened or what you are going to do about It. And please don’t let the people who have got us into this mess be under any illusion that there is an ‘easy’ answer here of taking a bath in Q3 ’01 and then regaining credibility by substantially over performing in ’02 and ’03. This is what the market thinks we did in 1997/8 and certainly they won’t let us do it twice in four years. Credibility once lost takes years to regain. If you-position EP as technically incompetent – as the widespread field decline story does, unless everyone else uses it – you can produce over the next few years the best reserve replacement ratios and new projects that you like and you will get little credit for them – because the credit we get for them rests on the markets assessment of EP technical competence. You will blight the relative TSR of the Group and everyone’s score card for years to come

From Walter van de Vijver “Production Growth” email dated 1 August 2001

Obviously internally I am not giving up on growth targets but there is a need to “cool” expectations particularly given the shortterm issues that are hitting us. D0 not forget that the quoted growth rates above do include some real big projects that are still far from FID (Sakhalin, Kashagan, Brasil DW, Nigeria UDW. Angola Block 18, GOM new (as yet undiscovered hubs), Egypt NEMEO). So “blaming”’ it on field declines and slippage on growth in emerging markets is the least we should do in order to downgrade expectations.

Shell Executives participating in the string of email correspondence

Phil Watts, Royal Dutch Shell Group Chairman & Group Managing Director

Walter van de Vijver, Shell EP CEO and Group Managing Director

Judith Boynton, Group Managing Director, Royal Dutch Shell Group

Simon Henry: Global Investor Relations Manager

Stephen M.G. Hodge, CFO & Director of Finance, Royal Dutch Shell Group

Jeroen van der Veer, Royal Dutch Shell Group Managing Director

Dominique Gardy: Chief Financial Officer Shell International Exploration & Production

Alf C Thorkildsen: Treasurer and controller of Shell Global EP business

John J Bell: Head of Shell Global Planning and Strategy Team

Lorin Brass: Member of EP Executive Committee. Head of Strategy Planning and Business Development for Shell EP. Reporting of oil and gas reserves fell under his supervision.

Frank Coopman, Chief Financial Officer, Shell EP

Michael Harrop, Shell Investor Relations Spokesmen

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