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Shell pays $151m to watchdogs

Financial Times: Shell pays $151m to watchdogs

“Thursday’s announcement has no bearing on the civil and criminal cases against individuals linked to the company.”

By Carola Hoyos, James Boxell and Deborah Hargreaves in London and Adrian Michaels in New York

Posted 30 July 04

Royal Dutch/Shell on Thursday paid $151m in fines to draw a line under its disputes with the US Securities and Exchange Commission and the UK’s Financial Services Authority.

But the world’s third largest energy group revealed the extent of the operational challenges it still faces by admitting that its production was declining and that it was unable to find sufficient new sources of oil and natural gas to replace old fields.

In January, Shell revealed that it had wrongly booked 20 per cent of its reserves with the SEC. It still faces a criminal probe by the US Department of Justice, an investigation by Dutch regulators and a host of class-action law suits from shareholders.

Jeroen van der Veer, chairman of Shell’s committee of managing directors, indicated in an interview with the Financial Times that Shell appears to have accepted the need to unify its dual boards.

“The whole idea of a unified board is how you do it and how you make it transparent, because I think shareholders are aligned there,” he said.

But Shell’s review group is also considering every option for changing its structure. “We haven’t ruled out more drastic options,” Mr van der Veer said. For example, the company is looking at the tax and legal issues that any change in the two parent-company structure would involve.

The company will pay the FSA £17m – a record fine for the 4-year-old body – and the SEC $120m. Shell agreed to spend another $5m on developing an internal compliance programme.

The SEC had accused the Anglo-Dutch group of having breached fraud, internal control and reporting provisions. The FSA said the company had committed market abuse. Shell did not admit or deny the accusations.

Mr van der Veer called the settlement “a hopeful step for Shell”.

US legal experts agreed, saying it would be unusual for the company to announce a deal with the SEC if it thought there was still a strong chance that it was facing prosecution by the DoJ, the US criminal authority.

Thursday’s announcement has no bearing on the civil and criminal cases against individuals linked to the company.

Of more concern was the announcement that Shell’s total production would drop to 3.7m-3.8m barrels of oil equivalent a day this year from 3.9m b/d in 2003 and that production could fall further next year.

Shell only expects to replace 60-80 per cent of its used reserves this year, although it said it was “reasonably confident” of meeting its 100 per cent replacement target over the next five years.

Shell already has the shortest field life of its peers and any replacement below 100 per cent means that in effect the company’s asset base is shrinking.

Mr van der Veer said Shell was looking for acquisitions. “There may come a window of opportunity opening up in Russia.

“Of course, we’ve thought about it, about the risks and what we are prepared to do and not prepared to do.”

Malcolm Brinded, head of exploration and production, admitted the company was now facing an environment where high oil prices made deals more difficult.

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