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Investors stunned by Shell revelation

Daily Telegraph: Investors stunned by Shell revelation

By Christopher Hope, Business Correspondent (Filed: 30/06/2004)

Major shareholders in Shell, the Anglo-Dutch oil giant, yesterday reacted with astonishment to the news that Shell’s Dutch chairman knew there was a problem with its reserves two months before its British chairman was told.

Aad Jacobs told shareholders at Royal Dutch’s annual meeting in the Netherlands that he was told there was a problem in November last year by Walter Van der Vijver, the head of exploration and production who was later fired.

However, at the same time in London, Lord Oxburgh of Liverpool told shareholders in Shell Transport that the board only found out in January when Shell said it had overstated its proven reserves by over 20pc.

Institutional investors were amazed that Mr Jacobs appeared not to grasp the significance of Mr Van der Vijver’s words in November. One said: “It would appear that Mr Van der Vijver summoned up his courage to talk to the chairman of the supervisory board. What [the chairman] did not say was ‘I need to get to the bottom of it.’

“Instead he sent him back so he could bang his head against a brick wall. [Mr Jacobs] kept it to himself – he did not talk about it to the supervisory board or the board of Shell Transport and Trading.”

Eric Knight, managing director of US fund manager Knight Vinke, which was representing over 1pc of Shell at the meeting, said he was surprised by Mr Jacobs’ admission. He said: “To say that the structure has nothing to do with it beggars belief. They are saying that it is a couple of rotten apples but we are saying that in some way the structure is at fault.”

Richard Singleton, head of corporate governance at fund manager Isis, which holds 1pc of Shell, said: “The failure to actually take seriously the guy coming forward is surprising to say the least.”

Mr Jacobs told shareholders at Monday’s Royal Dutch meeting: “In November I had a lunch conversation with Mr Van der Vijver. I try to do that once year with the managers. This conversation was postponed several times.

“Then you do not talk about things that go well. It was said that a problem could come up regarding oil reserve stocks.

“I asked him whether he had discussed this with his colleagues. The answer was no. I asked him whether he had discussed this with his boss. The answer was no.

“Then I said: ‘If you have a serious problem you have to discuss this as soon as possible with your colleagues.’ I heard nothing else about that until January.”

In contrast, Lord Oxburgh told Shell shareholders at the meeting in London that the non-executive directors knew nothing of the problems until January.

He said: “There has been no cover-up. The first idea that the non-executive directors of your board had of the problem was in January this year.”

One of the fields that Shell overbooked was its 17pc share of the Ormen Lange gas field in Norway. Yesterday Norsk Hydro, which has an 18pc share in Ormen Lange, did the same, slashing its proven estimate on the field from 336m barrels to 234m barrels.

BP, which owns 10pc in Ormen Lange, stood by its estimates for the field yesterday. In a filing, the company said that group-wide it had 23m more barrels under SEC rules than stated in its annual report and accounts in March.

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