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Fresh probe into Shell oil reserves scandal

The Scotsman: Fresh probe into Shell oil reserves scandal

Watchdogs to target ‘those responsible’

JIM STANTON, DEPUTY BUSINESS EDITOR

25 August 04

REGULATORS on both sides of the Atlantic are set to pursue a number of as-yet unnamed individuals that they believe are responsible for the reserves scandal at oil giant Shell.

News of separate investigation came as the embattled company settled fines with British and United States watchdogs over the debacle totalling £84 million.

Wrapping up an initial investigation, British regulator the Financial Services Authority said the Anglo-Dutch group was responsible for “unprecedented misconduct” and was putting out false figures for its proven oil reserves as far back as 1998.

The FSA said the false figures were an attempt to put a better light on the firm’s poor exploration performance as Shell executives were under pressure to boost reserves but were not incentivised enough to achieve it through actual performance.

The FSA – which itself fined Shell a record £17m for “market abuse” – also said that Shell’s auditors PricewaterhouseCoopers and KPMG were having doubts about the numbers Shell was showing from 1998.

The watchdog said it was continuing “investigations into other aspects” of the reserves scandal, which saw Shell – the world’s third-biggest oil company – falsely inflate its reserves by 20 per cent – 4.47 billion barrels – only to issue four subsequent downgrades so far this year.

The FSA said Shell had given “false and misleading” information to the City between 1998 and 2003 which it made no attempt to correct until January 2004.

Harold Degenhardt, administrator at the Securities and Exchange Commission (SEC) in the US, said: “As our investigation continues, we intend to focus on, among other things, the people responsible for Shell’s failures.”

Mr Degenhardt added that the overstatements had occurred “over an extended period”. The SEC said that it had warned Shell before late 2003 that its “reported proved reserves potentially were overstated”.

In a statement, the SEC said Shell had recorded and maintained reserves “it knew or was reckless in not knowing did not satisfy SEC requirements, and to report for certain years a stronger RRR [reserves] than it had actually achieved … Shell either rejected the warnings as immaterial or unduly pessimistic, or attempted to ‘manage’ the potential exposure”.

On top of the fines, Shell said it would also spend an additional £2.7m to develop and implement a “comprehensive internal compliance program” as part of its deal with the SEC. It said it has improved its systems to prevent “any recurrence of these unfortunate events”.

The scandal cost several of Shell’s top executives their job, including chairman Sir Philip Watts, head of exploration and production Walter van de Vijver, and finance director Judy Boynton. It is thought they may be the subject of the watchdogs’ further investigation.

Shell’s new board, led by chairman Jeroen van der Veer and managing director Malcolm Brinded, has slowly won shareholders over with promises to improve corporate governance.

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