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The Guardian: Shell had early reserves warning

The Guardian: Shell had early reserves warning

“Shell admitted yesterday that it had been warned about inflated reserves before it was forced to issue the first of four downgrades this year.”

David Gow

Friday July 16, 2004

Shell admitted yesterday that it had been warned about inflated reserves before it was forced to issue the first of four downgrades this year.

The latest mea culpa came after the Wall Street Journal reported that an internal auditor at the energy group had notified outside auditors of potential problems in 2002.

Shell said issues about a number of fields or regions had been identified earlier than January 2004 when it first downgraded its proven reserves. The downgrades now amount to 4.47bn barrels, 23% of Shell’s previously claimed reserves. The group said the earlier warnings had come when it was believed that any differences would be offset by potential adjustments in other areas. The combined effect was to leave reported volumes unaltered.

The internal auditor, Anton Barendregt, reportedly identified a 1% overstatement of proven reserves for 2002. Industry sources said this was unlikely to ring alarm bells.

Company officials said it was not until late 2003 that audits pushed the difference well beyond “the materiality threshold”, meaning the company could no longer rely on offsetting against other areas.

Shell refused to comment on what it said were leaked and unverifiable documents but, according to the WSJ, these highlighted potentially serious systemic problems with Shell’s reporting of reserves.

They also reportedly show that these problems were repeatedly brought to the attention of more executives and directors than previously disclosed. Ousted exploration director Walter van de Vijver has claimed he first reported them in September 2002.

Mr Barendregt told the auditors, KPMG and PwC, that Shell’s bonus scheme may have encouraged the inflation of reserves but a spokesman said that exploration and production executives typically got no more than 5% of salary in their bonuses because of extra reserves.

http://www.guardian.co.uk/business/story/0,3604,1262365,00.html

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