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Daily Telegraph: Shell to pay watchdogs £80m for oil reserves row

Daily Telegraph: Shell to pay watchdogs £80m for oil reserves row

“but warned it could not put a figure on the cost of investor lawsuits.”

By Caroline Muspratt (Filed: 30/07/2004)

Royal Dutch/Shell has agreed to pay more than £80m to regulators to settle investigations into the oil giant’s overstatement of reserves, but warned it could not put a figure on the cost of investor lawsuits.

The company will pay £17m to the Financial Services Authority, the largest settlement ever paid to the UK watchdog. It will also pay $120m (£66m) to the US Securities and Exchange Commission and will spend a further $5m to develop an internal compliance programme.

Speaking alongside Shell’s first-half results yesterday, Jeroen van der Veer, chairman of the committee of managing directors, said: “This is a hopeful step in resolving the reserves issue but let’s not celebrate more than it is.”

A spokesman for the FSA would not confirm whether it was still investigating the role of current or former Shell executives or whether any individuals might receive fines. It said it would justify the size of the fine when it publishes the final notice at a later date.

Shell’s chairman Sir Philip Watts, head of exploration Walter van de Vijver and finance director Judy Boynton all lost their jobs earlier in the year after it emerged that the company had overstated proven oil and gas reserves by more than 4billion barrels.

Mr van der Veer said: “We have made major progress in dealing with the reserves issue. However, the investigations by the authorities and the class actions continue.”

Shell said it was “unable at this stage to estimate the range of possible losses from the entire set of regulatory and other actions and litigation”. The company said it had settled without admitting or denying the FSA and SEC findings.

The fine is tiny in comparison with the company’s net income, which rose 7pc in the first half of this year to $8.66billion. Net income rose 54pc in the second quarter to $4billion.

Bruce Evers, an analyst at Investec, said: “You could argue they are getting off lightly – $120m is nothing to Shell.”

But Tim Morrison, acting finance director, said: “We are constantly looking for cost improvements, so these sums of money do make the eyes water.”

Mr van der Veer said: “Our overall performance this quarter was satisfactory, helped by higher oil prices and refining margins.”

But oil and gas production fell 5pc in the second quarter to 3.58m barrels of oil equivalent a day, and fell 4pc in the first half to 3.82m barrels. Mr van der Veer said the company would continue its “aggressive programme of exploration and new business development”.

Total output is expected to be 3.7m-3.8m barrels a day this year, though the forecast for 2005 and 2006 drops to 3.5m-3.8m barrels a day.

Malcolm Brinded, chief executive of exploration and production, said the outlook for proven reserves replacement is 60pc-80pc, which he admitted “looks disappointing”. He said he was “confident we will meet the 100pc reserves replacement forecast”.

Mr Evers said exploration and production results were “disappointing”. He added: “It will take a lot to turn that division around. They might have to get very aggressive – the business is in disarray.”

Shell said it was reviewing its joint venture with BASF which could result in a sale of its 50pc stake or an initial public offering of Basell, a polyolefins business. The shares rose 10 to 400p.

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