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Daily Telegraph: Shell takes mauling over ‘market abuse’

Daily Telegraph: Shell takes mauling over ‘market abuse’

“Shell was yesterday savaged by regulators in Britain and America for “unprecedented misconduct”: ‘The FSA said Shell “disseminated false or misleading information as to the true extent of its proved reserves” from 1998 until last July.’

By James Moore (Filed: 25/08/2004)

Shell was yesterday savaged by regulators in Britain and America for “unprecedented misconduct” that led to it mis-stating its proven oil reserves by more than a fifth.

The US Securities & Exchange Commission and the Financial Services Authority spelled out a catalogue of failings at the crisis-stricken oil company and set out their reasons for imposing penalties of $120m (£67m) in the US and a record £17m in the UK.

A further $5m will be spent by the Anglo Dutch company on developing and implementing a comprehensive internal compliance programme as part of its decision to settle an SEC fraud probe announced last month.

Both regulators said that the company repeatedly ignored warnings that it was overstating oil reserves classed as “proven” under SEC guidelines and the SEC said it would now turn its sights on individuals at Shell.

The FSA said Shell “disseminated false or misleading information as to the true extent of its proved reserves” from 1998 until last July.

It said other behaviour it classified as “market abuse” included the announcement of false or misleading reserve replacement ratios, used to gauge how well an oil company is replacing oil that it has extracted.

The regulator also said that Shell had been given “indications” that its figures were wrong in 2001 and 2002, which were followed by warnings in 2002 and 2003. They were typically rejected as immaterial or overly pessimistic by the company.

The SEC said Shell had failed to correct the overstatement of reserves in an attempt to keep the reserve replacement ratio high and reserve statements in areas such as Nigeria and Oman depended on “unrealistic” production forecasts.

It warned other oil and gas groups to ensure their reserve disclosures met its requirements.

Harold Degenhardt, administrator of the SEC’s Fort Worth Office, said: “Shell’s overstatement of its oil reserves, which occurred over an extended period, mandate a strong enforcement response. As our investigation continues we intend to focus on, among other things, the people responsible for Shell’s failing.”

The FSA said the fine marked the end of its investigation into “Shell’s misconduct” but hinted that it would be pursuing a similar course to the SEC. It said: “Investigations into other aspects of this matter are ongoing.”

The scandal led to the ousting of Sir Philip Watts, chairman of the committee of managing directors, and Walter van de Vijver, head of exploration and production, in March.

Finance director Judy Boynton stepped down the next month when an internal report by US law firm Davis Polk and Wardwell detailed a deeply damaging exchange of e-mails between Sir Philip and Mr van de Vijver.

The latter said in one that he was “sick and tired of lying” about the oil reserves.

Shell yesterday issued a statement saying: “Shell settled without admitting or denying the findings and conclusions in the FSA’s final notice and the SEC’s cease and desist order.”

Jeroen van der Veer, chairman of Shell’s committee of managing directors, said: “Shell has worked hard over the past months to improve its systems and controls and implement other remedial measures to prevent any recurrence of these unfortunate events.”

U.S. Securities & Exchange Commission Report

UK Financial Services Authority Report

Press Statement Issued by UK Financial Services Authority

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