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The New York Times: Shell Asks Shareholders for Forgiveness

The New York Times: Shell Asks Shareholders for Forgiveness


Published: June 28, 2004

LONDON (AP) — The leaders of the Royal Dutch/Shell Group of Cos., chastened by this year’s reserves booking fiasco, asked shareholders for forgiveness on Monday and time to revamp the Anglo-Dutch oil giant.

At two annual general meetings in England and the Netherlands, board members of the parent companies — Royal Dutch Petroleum Co. and Shell Transport & Trading Co. — were pressed by shareholders and institutional investors who have been calling for structural changes and greater openness.

“Let me start by offering a sincere apology for the failures that led to the significant restatement of the group’s proved reserves earlier this year,” Ron Oxburgh, the non-executive chairman of Shell Transport & Trading, said at the London meeting.

Shell has an unusual, bi-national structure in which Royal Dutch Petroleum Co. of the Netherlands controls 60 percent of the group and Britain’s Shell Transport & Trading Co. PLC holds the remaining 40 percent.

Investors and analysts alike have blamed this cumbersome structure for the breakdown in governance that led to significant overstatements of the company’s oil and gas reserves. Shell downgraded its proven reserves by 4.47 billion barrels, or 23 percent, in four separate revisions starting in January.

Proven reserves are the amount of oil and gas a company expects to commercially pump to the surface. They are a crucial measure for investors of an oil company’s performance and future value.

The reserves overstatement led to the resignations of chairman Philip Watts, head of exploration and production Walter van de Vijver, and chief financial officer Judy Boynton. It also drew the attention of regulators in the United States and Europe.

At the Hague meeting on Monday, executives said that 30 employees have so far been questioned by the U.S. Securities and Exchange Commission, which is investigating the Anglo-Dutch oil giant for improper reserves disclosure.

Shell, the world’s third-largest publicly traded oil company by market capitalization, didn’t specify who those employees are.

The initiation of the SEC’s formal, nonpublic investigation in late February meant the U.S. watchdog’s enforcement division has the power of subpoena to get information.

The reserves scandal also sparked a number of class-action lawsuits in the United States, and prompted calls from investors for a major shake-up of the group’s complicated corporate structure.

In London on Monday, Oxburgh reiterated that non-executive members of the board didn’t know anything about problems with the booking of reserves until early January. “The boards have asked themselves, ‘what could we have done sooner?” Oxburgh said. The answer was not much, considering “some of the executive directors were economic with what they passed on to the board,” Oxburgh said, in what appeared to be a thinly-veiled reference to ineffectual dialogue from Watts and van de Vijver.

However, in The Hague, Shell supervisory board chairman Aad Jacobs said he had a lunch meeting with van de Vijver in November 2003, during which van de Vijver informed him that there were problems with the booking of proven oil reserves.

At the annual meeting in The Hague, a vote to discharge Royal Dutch’s management of its responsibility for the past year was unusually close, with only 60 percent voting in favor. But the company said it would confer with the market as Shell undergoes a comprehensive review of its corporate governance and structure.

On the sidelines of the London meeting, Richard Singleton, director of corporate governance at ISIS Asset Management, told Dow Jones Newswires that ensuring there is a “straight line of sight from the shareholders to the board,” is very important. He said he was content with the commitment to openness the company has made.

Others at the meeting were less upbeat.

“We still want to see an independent expert” on the steering committee reviewing the company’s corporate structure, said Alan MacDougal, managing director of Britain’s Pensions Investment Research Consultants.

Oxburgh moved to assure shareholders, saying that even “radical” change was being considered.

A number of institutional investors have said they’d like to see the twin boards unified, a scenario Shell said it is considering.

In London, heated comments occurred ahead of the vote to approve remuneration schemes for former managers. Some shareholders were infuriated by the severance payment of 1.06 million pounds ($1.9 million) to Watts, which was announced by Shell last week.

Nevertheless, the remuneration resolution passed with more than 90 percent of shareholders in favor, according to a preliminary count.

Some analysts criticized Shell for sticking to its November timetable for completion of corporate governance review, despite pressure to speed up the process.

In another development, Royal Dutch/Shell reiterated on Monday a commitment to stop flaring off natural gas from oil projects in Nigeria by 2008. The company said it has spent about $2 billion to date on infrastructure to collect and ship the gas which would otherwise be burned.

Shell has been under pressure from environmentalists and local residents to end gas flaring in Nigeria.

On the London Stock Exchange, Shell Transport & Trading’s shares rose 0.1 percent to close at 416 pence ($7.65). In late afternoon trading on the New York Stock Exchange, the U.S. shares of Royal Dutch fell 4 cents to $52.24 while U.S. shares of Shell Transport & Trading were down 1 cent at $45.77.

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