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Financial Post (Canada): Shell settles U.S. Lawsuit

Financial Post (Canada): Shell settles U.S. Lawsuit

“Energy sector: US$90M paid to employees over fake reserves: “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 did not say who was being sued.”

Wednesday 13 July 2005

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

The accord brings to about US$240-million costs related to the overstatement, which led to lawsuits, criminal investigations and the ouster of chief executive Philip Watts. Insurance will cover US$25-million of the settlement, Shell said yesterday.

“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% on Jan. 9 of last year, the day Shell said it would cut its reserves estimate 20%.

The US$90-million settlement represents less than two days’ profit for Royal Dutch/Shell Group, which had record net income of US$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 US$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 Mr. Verbiesen.

Shell resolved the complaint a day after Enron Corp. also settled, for US$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 US$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. The case was filed in U.S. Federal Court in New Jersey.

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

Shell earlier had agreed to pay US$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 did not say who was being sued.

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