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Shell’s ex-chairman makes counterattack

International Herald Tribune: Shell’s ex-chairman makes counterattack

“The overstatement of Shell’s reserves by 20 percent, first disclosed in January, has led to more than a dozen shareholder lawsuits, the loss of the company’s top-tier credit rating and the departure of three senior executives, including Watts. His defense may slow Shell’s efforts to move forward, one analyst said.”

Bloomberg News Friday, September 17, 2004

He rejects report by British regulator

Philip Watts, silent since being removed in March as chairman of Royal Dutch/Shell Group after a huge overstatement of the company’s proven reserves of natural gas and oil, has begun to fight back.

Watts said Thursday that he would challenge a British regulator’s finding that implicated him in “unprecedented misconduct” when Shell, Europe’s No. 2 oil company, overstated its reserves.

Watts, 59, asked for a tribunal to challenge the final notice that the regulator, the Financial Services Authority, published last month, when Shell agreed to pay fines of $151.5 million in Britain and the United States, according to a copy of a letter to the regulator that was confirmed by his lawyer Joseph Goldstein of Crowell Moring in Washington.

The overstatement of Shell’s reserves by 20 percent, first disclosed in January, has led to more than a dozen shareholder lawsuits, the loss of the company’s top-tier credit rating and the departure of three senior executives, including Watts. His defense may slow Shell’s efforts to move forward, one analyst said.

“The agreement to pay fines was at least starting to put the issue behind them,” said Ivor Pether of Royal London Asset Management. “The shares were starting to look forward, anticipating what might come out of the strategy presentation and corporate governance review. This could reopen the examinations of events.”

The shares of Shell Transport Trading in London fell 3.5 pence to 413.5 pence. The stock has risen 13 percent since the erroneous reserves were reported, lagging behind the 18 percent rally of BP as oil and gas prices surged.

Shell’s current chairman, Jeroen van der Veer, is rebuilding management at the British-Dutch company and trying to win back the confidence of investors. Next week, Shell is scheduled to provide an update to investors on Shell’s strategy and is conducting a review of corporate governance, including investor calls to unify the two boards that the company has operated under since 1907, Van der Veer said in Vienna.

Although Watts was not identified by name in the regulator’s notice, it may provide ammunition for the class-action suits filed against him. Watts said that he had acted within Shell guidelines, that the regulator’s findings were “fundamentally flawed” and that he should have been able to challenge them.

“The FSA violated my statutory rights to review and rebut the allegations,” Watts said in the letter. “I believe that a full and fair examination of all the facts will demonstrate that I have acted properly and in good faith at all times. This application starts that process.”

The U.S. Securities and Exchange Commission also last month settled with Shell. The company, which is based in London and The Hague, neither admitted nor denied wrongdoing. The commission is still continuing its investigation into “the people responsible for Shell’s failures,” Harold Degenhardt, administrator of the commission’s office in Fort Worth, Texas, said in a statement on Aug. 24.

A spokesman for the Financial Services Authority, David Cliffe, declined to comment.

Shell said in January that it had wrongly booked a fifth of its proven oil and gas reserves. Watts and Walter van de Vijver, who was head of oil and gas at the company, were asked to resign after Shell’s boards lost confidence in them.

In April, Shell released part of a review by lawyers at Davis Polk Wardwell into the reserve reduction. It said senior Shell executives, including Watts, had been sent memorandums that said some reserves did not comply with rules of the Securities and Exchange Commission almost two years before the shortfall was disclosed, on Jan. 9.

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