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Shell Says SEC Questioned 30 In Reserves Probe

The Wall Street Journal: Shell Says SEC Questioned 30 In Reserves Probe

Investigators from the SEC and the Justice Department have teamed up in the probe”



June 29, 2004; Page A2

Posted 30 June 04

Royal Dutch/Shell Group said 30 employees have been questioned by the Securities and Exchange Commission regarding the oil company’s massive overstatement of energy reserves this year.

Investigators from the SEC and the Justice Department have teamed up in the probe and are expected to request interviews with dozens of additional current and former Shell executives.

In a contrite appearance before angry shareholders yesterday at the annual meeting of Shell’s Dutch parent company, Jeroen van der Veer, Shell’s chairman, said he was surprised to learn that the number of executives interviewed in the probe was as high as it was. He said he wasn’t aware of the status of the SEC and the Justice Department investigations and said he hadn’t received an invitation to be interviewed by either agency. He declined to comment on whether he expected to be asked to appear.

Raising fresh questions, however, Aad Jacobs, the nonexecutive chairman of Shell’s audit committee and its Dutch parent company, told shareholders that he had a lunch meeting with the company’s former head of exploration and production, Walter van de Vijver, in November 2003, where Mr. van de Vijver said there were problems with the company’s reserves. Mr. Jacobs didn’t say specifically what was discussed at the meeting and declined to comment further. The lunch contact hadn’t previously been disclosed.

Shell said in January that it had overstated its reserves of oil and natural gas, an important indicator for investors of an oil company’s health. An internal report, parts of which were released in April, laid the blame squarely at the feet of Philip Watts, the former chairman ousted by Shell’s boards in March, and Mr. van de Vijver. The internal report disclosed a trail of correspondence between the two about the reserves problem and faulted them for not disclosing the matter outside the executive suite.

Shell’s operating companies are jointly owned by Royal Dutch Petroleum Co. of The Hague, and London-based Shell Transport & Trading Co., in a 60-40 split. At the Shell Transport meeting in London, Ron Oxburgh, independent chairman of Shell’s British parent, maintained that nonexecutive directors were kept in the dark about the reserves problems until early January of this year. “Some of the executive directors were economic with what they passed on to the board,” Lord Oxburgh said.

At the Royal Dutch Petroleum meeting, shareholders voted in favor of discharging the company’s executives and directors from legal responsibility for their actions in 2003. The move is common each year among Dutch companies, but some activist investors had threatened to withhold the release. The vote was unusually close, with only about 60% voting in favor. The discharge doesn’t relieve directors from legal responsibility related to a number of courtroom actions in the U.S. initiated on behalf of shareholders.

A handful of executives act as the company’s top management team but answer to both boards. Critics have called the structure unwieldy and opaque.

Shell has undertaken a major review of its corporate structure and said it is considering, among other options, unifying its two boards and appointing a more traditional chief executive officer. The review is expected to unveil proposals in November for further discussion with shareholders, and some investors and analysts have expressed disappointment it wasn’t moving more quickly.

—- Arent Jan Hesselink it The Hague contributed to this article.

Write to Almar Latour at [email protected], Mark Long at [email protected] and Chip Cummins at [email protected]

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