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The Guardian: Shell fined £84m over reserves scandal

The Guardian: Shell fined £84m over reserves scandal

“Shell is facing a criminal investigation by the US department of justice, ongoing inquiries by the Dutch financial market regulator and the Euronext stock exchange as well as litigation in the US”

Mark Milner

Friday July 30, 2004

Posted 31 July 2004

Royal Dutch/Shell said yesterday it had agreed in principle to pay £83.6m in fines to regulators in Britain and the US to settle investigations into the oil reserves scandal that broke this year.

News of the fines came alongside results from Shell which showed higher oil prices helped the group to earn net income of $4bn (£2.2bn) in the second quarter.

Shell said it would pay $120m to the securities and exchange commission for breaches of SEC rules and US laws, and £17m to the Financial Services Authority under UK market abuse provisions. The British fine is the largest imposed by the FSA and more than four times the previous record. Shell promised the SEC it would spend another $5m on bolstering internal compliance procedures.

Though the agreements announced yesterday will halt the FSA and SEC inquiries, Shell is facing a criminal investigation by the US department of justice, ongoing inquiries by the Dutch financial market regulator and the Euronext stock exchange as well as litigation in the US.

The investigations and litigation follow Shell’s announcement in January and subsequently that it had overstated its reserves by a fifth. The news sparked a scandal that cost chairman Sir Philip Watts, exploration director Walter van de Vijver and chief financial officer Judy Boynton their jobs.

The group also remains under pressure from shareholders to reform its corporate structure, improve governance procedures and increase transparency. A report on the issue is due in November.

Jeroen van der Veer, chairman of the group’s committee of managing directors, described the settlements with the SEC and FSA yesterday as “a hopeful step in dealing with the reserves issue” though he acknowledged there were still challenges to face, including rebuilding the group’s reputation. “There is a huge appetite among Shell people to get this company back on track.”

Shell sought to shrug off suggestions that the size of the fines meant they would barely be noticeable to a company of the group’s earning power.

“These are sums to make the eyes water; we don’t regard them as some sort of trivia,” acting chief financial officer Tim Morrison said.

Commenting on Shell’s second-quarter performance, Mr Van Der Veer said the 54% improvement in net income to $4bn had been helped by the “tailwind in oil prices and a good downstream performance”. Exploration and production earnings were down 3%, hit by lower production, exploration write-offs, higher taxes and increased depreciation stemming from lower reserves and exchange rates. Yesterday Shell shares closed up 10p at £4.

“The litigation issues remain in the background but the high oil prices more than offset them in the context of Shell,” said Michael Gifford, fund manager at Isis Asset Management.

The Anglo-Dutch group has faced calls from some investors to build up its reserves base through acquisitions.

Shell managing director Malcolm Brinded warned yesterday: “Don’t expect [acquisitions] to be a silver bullet. When oil prices are high, good opportunities are few and far between.”

· High oil and gas prices led to another record quarter for ExxonMobil, with profits jumping 39% from a year ago.

The oil firm said yesterday it earned $5.79bn in the April to June period, compared with $4.17bn a year earlier.,3604,1272304,00.html

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