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US watchdog under fire over oil reserves scandal

The Times: US watchdog under fire over oil reserves scandal

“House Committee on Financial Services convened a hearing on the Shell reserves scandal.”

By Carl Mortished, International Business Editor

July 22, 2004

AMERICA’S stock market regulator, the Securities and Exchange Commission, has come under fire from US congressional leaders over its handling of the oil reserves reporting scandal.

John Dingell, a senior member of the House Energy and Commerce Committee, has attacked the SEC’s inaction over reserves writedowns at Shell and El Paso Energy. In a terse letter to William Donaldson, the SEC chairman, he expresses concern over the weak response by SEC staff in a memorandum written following the Congressman’s questions on oil reserves reporting. Mr Dingell writes: “I am underwhelmed, if not outright troubled by the staff resources and level of review that the memorandum indicates is given to these critical matters.”

The row was set to intensify yesterday as the House Committee on Financial Services convened a hearing on the Shell reserves scandal. The row may soon spill into the laps of accountants as the SEC is considering an increase in the role of auditors in reporting oil and gas reserves. Referring to the Shell scandal, the SEC states: “Internal controls over the preparation of reserve estimates may have been inadequate . . . we will review these concerns with the Public Company Accounting Oversight Board and evaluate with them whether auditors should be required to perform additional work.”

Accountants responded with alarm at the prospect of being burdened with oil reserves reporting. “We don’t have the resources or skills to do it,” said Hywell Ball, a partner in Ernst & Young. “To do a reserves audit you would need geophysicists, geologists, petrophysicists, reservoir and petroleum engineers and economists.”

The SEC has come under widespread criticism in the oil industry for its failure to update reserves reporting rules.

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