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BLOOMBERG: Shell Will Pay $90 Million to Settle U.S. Lawsuit

BLOOMBERG: Shell Will Pay $90 Million to Settle U.S. Lawsuit

“Royal Dutch/Shell Group, Europe’s second-largest oil company, agreed to pay about $90 million to settle a lawsuit brought by its U.S. employees after the company overstated its oil and gas reserves by 41 percent. The accord brings to about $240 million costs related to the overstatement, which led to lawsuits, criminal investigations and the ouster of Chief Executive Philip Watts (Update6)

Wednesday 13 July 2005

(Bloomberg) — Royal Dutch/Shell Group, Europe’s second-largest oil company, agreed to pay about $90 million to settle a lawsuit brought by its U.S. employees after the company overstated its oil and gas reserves by 41 percent.

The accord brings to about $240 million costs related to the overstatement, which led to lawsuits, criminal investigations and the ouster of Chief Executive Philip Watts. Insurance will cover $25 million of the settlement, Shell said in a statement today.

“Settling a class-action lawsuit is a big relief,” said Dirk Verbiesen, an F. Van Lanschot Bankiers analyst in Den Bosch, Netherlands, who has a “hold” rating on Royal Dutch Petroleum Co. shares. “Usually, you can see larger numbers than this in a class-action lawsuit. A settlement takes away some uncertainty.”

The complaint was brought by employees enrolled in savings plans covered by the Employee Retirement Income Security Act, or Erisa. Shell Transport and Trading shares dropped 7.7 percent on Jan. 9 of last year, the day Shell said it would cut its reserves estimate 20 percent.

Shell shares declined along with other energy companies in Europe today. They fell as much as 10 pence, or 1.8 percent, to 538.75 pence and were down 8.5 pence as of 3:20 p.m. in London. BP Plc dropped as much as 13.5 pence, or 2.1 percent, to 620.5 pence. France’s Total SA lost as much as 2.90 euros, or 1.4 percent, to 201.3 euros in Paris.

Two Days’ Work

The $90 million settlement represents less than two days’ profit for Royal Dutch/Shell Group, which had record net income of $18.5 billion last year under International Financial Reporting Standards. Shell and competitors including BP posted a surge in 2004 earnings as political instability and demand from China helped drive oil prices above $50 a barrel.

“The settlement looks like a lot, but if you put it into the context of the numbers Shell has, they can handle it,” said F. Van Lanschot’s Verbiesen.

Shell resolved the complaint a day after Enron Corp. also settled, for $356.25 million, a lawsuit brought by employees. That suit accused Enron, the energy trader that filed the second- biggest bankruptcy in U.S. history, its directors, former Chairman Ken Lay, Chief Executive Jeffrey Skilling and other officers of mismanaging the company’s retirement funds.

If Shell’s settlement is approved by the U.S. federal court in New Jersey, where the class-action suit is pending, it will also pay as much as $1 million more in legal fees, Shell said.

“We are hopeful that the court will approve the settlement, which represents an important step toward putting litigation relating to the reserves recategorizations behind us,” Beat Hess, Shell’s legal director, said in the statement. The case was filed in U.S. Federal Court in New Jersey.

Regulatory Penalties

On June 29, the U.S. attorney for New York, David Kelley, said the federal government wouldn’t bring criminal charges against Shell. Kelley, the top federal prosecutor in New York, said criminal prosecution would serve no public interest.

Shell earlier had agreed to pay $151 million in penalties to end regulatory inquiries in the U.S. and the U.K. It still faces investigations by the stock exchange Euronext and the AFM, the Dutch financial markets regulator. Another shareholder class-action lawsuit is pending in U.S. District Court in New Jersey.

Shell is also negotiating a settlement with current and former “directors and officers” of the company, whom Shell is suing, Shell spokeswoman Bianca Ruakere said. She wouldn’t say who was being sued.

Shell is “unable to estimate the range of possible losses from such matters and does not believe their resolution will have a material impact on the company’s financial condition,” the company said in its annual report for last year.

To contact the reporter on this story:

Dale Crofts in Amsterdam at [email protected].

http://www.bloomberg.com/apps/news?pid=10000102&sid=a2Fb2.ix4JA4&refer=uk

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