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Reuters: Shell pays fines for reserves woes

Reuters: Shell pays fines for reserves woes

“Royal Dutch/Shell will pay about $150 million (82 million pounds) in fines for an oil reserves scandal that tarnished its reputation”

“Shell’s profits looked reasonable, but concerns remain over future production.” Oriel Securities analyst Richard Rose

By Sudip Kar-Gupta

Thu 29 July, 2004 09:12

LONDON/AMSTERDAM (Reuters) – Royal Dutch/Shell will pay about $150 million (82 million pounds) in fines for an oil reserves scandal that tarnished its reputation, the group says after reporting higher second-quarter profits.

The world’s third-biggest oil group said on Thursday net profit adjusted for the current cost of supply was $3.768 billion in the quarter, up 16 percent from a year earlier, but below forecasts. The company said production was lower and would fall further.

Shell joined rivals such as BP in benefiting from record oil prices, which have surged amid political tension in the Middle East and a crisis at Russian oil major YUKOS.

Analysts polled by Reuters had forecast profits between $3.8-$4.3 billion, with an average forecast of $4.05 billion.

Shell shocked investors in January by slashing its proven oil and gas reserves by 20 percent. Subsequent smaller reserves cuts, while not as dramatic as the first, further dented investor confidence.

Chairman Philip Watts, oil and gas chief Walter van de Vijver and Chief Financial Officer Judy Boynton lost their jobs over the scandal, and it sparked a probe by U.S. regulators. It also cost Shell its cherished “AAA” top-grade credit rating.

Shell shares fell 0.9 percent to 386-1/2 pence in London morning trade, and Royal Dutch shares were down 0.6 percent in Amsterdam.

“Shell’s profits looked reasonable, but concerns remain over future production,” said Oriel Securities analyst Richard Rose, who has an “add” rating on Shell.

PENALTIES

The Anglo-Dutch firm said it had agreed in principle to resolve investigations by the United States Securities & Exchange Commission (SEC) and Britain’s Financial Services Authority (FSA) over its reserves recount.

Shell said it would pay 17 million pounds to the FSA for breaching market-abuse provisions and listing rules and a civil penalty of $120 million to the SEC for violation of U.S. securities laws and SEC rules.

However, Shell added that the final impact of the reserves scandal on the group remained difficult to assess.

“They’re saying they’re unable to estimate the potential cost of reserves restatement litigation which could have quite a big impact,” said David Richards, senior trader at Finspreads.

Shell, which has a Dutch and British dual-company structure, is undergoing an internal review to improve corporate governance and said it would publish results of this in November.

Shell stock has underperformed global leader Exxon and British rival BP BP.L this year.

Rob Koenders, a trader at Dutch broker Eureffect, said Shell remained a sound company, but Investec Securities analyst Bruce Evers said investors would continue to have concerns until Shell finalised its corporate governance review.

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