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London Evening Standard: Shell pays over reserves scandal

London Evening Standard: Shell pays over reserves scandal

“It still faces a host of multi-billion dollar class-action lawsuits and a US Department of Justice probe.”:

Steve Hawkes, Evening Standard

29 July 2004

TROUBLED oil giant Shell has agreed to fork out £83m in penalties to UK and US stock market regulators to settle the reserves crisis that cast a huge shadow over half-year results unveiled today.

Shell plans to pay £17m to the Financial Services Authority* and $120m (£66m) to the US Securities and Exchange Commission to ‘resolve’ investigations into whether it broke disclosure rules.

It still faces a host of multi-billion dollar class-action lawsuits and a US Department of Justice probe.

The Anglo-Dutch group admitted earlier this year it overbooked oil and gas reserves by more than 4bn barrels, slashing its lucrative energy portfolio by 23% and stunning the City.

The sensation cost three executives their jobs, including former chairman Sir Philip Watts, amid allegations the issue had been covered up in the boardroom for two years.

Shell pointedly refused to accept guilt for the scandal today, stating it was agreeing to pay the fines in principle without ‘admitting or denying’ the FSA or SEC findings or conclusions.

But the move may be welcomed with a huge sigh of relief by analysts desperate for Shell’s new management team to bury the reserves issue once and for all and focus on plugging the vast holes in its portfolio.

Exploration chief Malcolm Brinded said: ‘This helps us to begin to put these issues behind us.’ The battle Shell faces to revive its business following the fiasco was laid bare by second-quarter figures.

While underlying profits surged 16% to $3.77bn in the three months to 30 June – almost £1m an hour – the group relied on strong performances from its downstream refining and petrol divisions and sky-high crude prices that averaged 20-year highs.

Profits in the group’s sprawling exploration arm fell 3% to $1.93bn as oil and gas production tumbled 5% to 3.5m barrels a day, given the fall-off in output at Shell’s ageing fields.

The supermajors rely on replacing these with new reserves, but Shell revealed today production was likely to remain flat until 2007 at best. Its reserves replacement ratio next year could be just 60%.

Chairman Jeroen van der Veer admitted the figure was a ‘disappointment’ but insisted ‘the stuff is there’ under the ground, simply not yet at a proven level.

Brinded said Shell was pouring investment into bringing more oil and gas on stream and insisted acquisitions were not ‘the silver bullet’.

‘Oil prices are high so growth opportunities are hard to find,’ he said.

The group is considering ‘strategic alternatives’ for its 50-50 petrochemical joint venture with German chemicals giant BASF, which makes components for detergents and plastic bottles.

Shell’s shares were down 1 1/2p at 388 1/2p in early trade.

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