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Shell’s road to redemption remains a long one

The Independent: Shell’s road to redemption remains a long one

“An extradition battle involving Shell’s former chairman Sir Phil Watts would provide splendid entertainment but it would also guarantee plenty more bad headlines”

Michael Harrison’s Outlook:

30 July 2004

Two down, only six to go. The settlements Shell announced yesterday with the Securities and Exchange Commission in America and the Financial Services Authority over here means that it can, at last, begin to put a little bit of clear water between it and the reserves reporting scandal.

Tim Morrison, Shell’s acting-finance-director-but-not-for-much-longer, insists that the £83m in fines was sufficient to make eyes water in the boardroom. But, in truth, this is the kind of sum that can be lost in the rounding for a company like Shell, which made a $4bn profit in the second quarter of the year alone.

Jeroen van der Veer says he thought long and hard about how to characterise the twin settlements as he gazed into the shaving mirror yesterday morning. In public, Shell’s chairman says they could best be described as a “hopeful step”. In private, they probably brought a bigger smile to his face than even $43 a barrel oil.

The process of confession, redemption and salvation that Shell has embarked on is, nevertheless, a long one and it still has three other regulatory investigations and three sets of civil actions to negotiate. Of the remaining hurdles, by far the most serious is the ongoing criminal investigation by the US Justice Department, which takes in not just the company itself but former and serving directors. An extradition battle involving Shell’s former chairman Sir Phil Watts would provide splendid entertainment but it would also guarantee plenty more bad headlines for his erstwhile employers.

Criminal damages, moreover, could dwarf the $120m fine levied by the SEC – a paltry sum compared with the pound of flesh the US authorities have grown used to extracting from companies who play fast and loose with the actualité and shareholders’ money. Just consider the multibillion-dollar settlements which the New York attorney general Eliot Spitzer has extracted from the US investment banking community.

As for the US class action lawsuits from shareholders, which have now been rolled into one, these could take an age to come to court. But one in 10 Americans is not employed in the law, in one shape or another, for nothing and the provisions so far made by Shell take no account whatsoever of civil damages and costs.

Distracted by the regulatory settlement, it is easy to overlook how indifferent Shell’s second-quarter performance was. Notwithstanding a 35 per cent increase in oil prices, profits from exploration and production actually fell by 3 per cent. Admittedly, some of this was due to a decline in output as fields were sold off but the future does not look any rosier. Production is now slated to fall next year and the year after that as Shell puts more effort into finding the black stuff in higher risk but higher reward parts of the world in an effort to rebuild its reserves ratio.

If and when Shell does emerge finally from the scandal which overtook it this year, it still faces a long, hard climb back to respectability.

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