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Daily Telegraph: Big oil in big trouble as BP faces working over by US

EXTRACT: He was able to show that he relied on Shell’s reserves reporting process which was transparent and involved experts who believed it to comply with SEC rules; that he relied on Shell’s external auditors who followed procedure, reviewed relevant reserves and did not object to Shell’s proved reserves submissions to the SEC; and finally Shell’s reserves booking was discussed openly with other management including the group audit committee. Case dismissed.

THE ARTICLE

Business comment
By Damian Reece

(Filed: 31/08/2006)

Just as Sir Philip , the erstwhile chairman of Shell, announces to the world that investigations against him have now been closed without charges being brought after the oil giant’s 2004 reserves scandal, the legal noose is tightening around Shell’s great rival BP.

The past two years or more have seen big oil in big trouble for one reason or another. Shell, having eaten tons of corporate humble pie since admitting it had mis-stated its crucial oil reserves number, has recently let BP take a monopoly position on bad news.

BP is now facing a string of damaging investigations, from the safety of its oil refinery in Texas that had a fatal explosion last year, to environmental damage caused by corroding pipelines in Prudhoe Bay, to allegations of market manipulation of crude oil and unleaded petrol markets, which come with both criminal and civil proceedings.

The issues that faced Shell in 2004 and which precipitated Sir Philip’s resignation are different to the raft of allegations now being beaten off by BP. But while still only allegations, BP is in danger of being engulfed in a series of issues that could prove as damaging to its reputation as that faced by Shell.

Lord Browne, the previously untouchable BP chief executive, has finally succumbed to those jealous gods who rule the markets.

Hubris seems to have struck again. A nasty skirmish with BP’s chairman, Peter Sutherland, during the summer over Lord Browne’s retirement date now seems the least of the great man’s worries.

His final two years as BP chief executive will now surely be permanently dogged by the allegations that have blown up in the US against the company and which have now dragged the former Sun King of British business into a rising quagmire of claim and counter claim.

Still, Sir Philip Watts has managed to emerge from an oil industry scandal unscathed judging by the upbeat and victorious nature of his statement yesterday, issued through his lawyers.

The Securities & and Exchange Commission in Washington has decided not to take any action against Sir Philip, nine months after the UK’s equivalent watchdog, the FSA, came to the same conclusion.

As Sir Philip said yesterday: “I am extremely pleased that the US authorities have closed the investigation. As I have stated from the beginning, I have acted in good faith throughout and I had every reason to believe that all at Shell acted properly and in good faith when disclosing proved reserves.”

Of course, it had all looked pretty grim for Sir Philip and the other executives who resigned at the time, given what Shell was saying back in April 2004.

Having received an external report into the reserves furore, Aad Jacobs and Lord Oxburgh, chairmen of Shell’s parent company boards, said: “The report to the general audit committee revealed disturbing deficiencies in our past reserves reporting practices and the manner in which Shell dealt with those issues. We have accepted these difficult findings in full and have taken vigorous action.”

What Shell was always careful to avoid was apportioning blame and blame is certainly what Sir Philip has avoided. Chief executives around the world will be agog to know how Sir Philip has managed to see that justice was done in his case.

Helpfully, in his statement yesterday he set out the basis of his defence which will become required reading for any chief executive keen to disprove individual responsibility.

He was able to show that he relied on Shell’s reserves reporting process which was transparent and involved experts who believed it to comply with SEC rules; that he relied on Shell’s external auditors who followed procedure, reviewed relevant reserves and did not object to Shell’s proved reserves submissions to the SEC; and finally Shell’s reserves booking was discussed openly with other management including the group audit committee. Case dismissed.

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