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Daily Mail: Watts is cleared by US oil reserves inquiry

By: Brian O’Connor, Daily Mail – London: KRTBN
Published: Aug 31, 2006

Former Shell chairman Sir Philip Watts has been cleared by the US Securities and Exchange Commission, which spent two years investigating his role in Shell’s reserves scandal. His lawyers said the SEC “concluded that no action should be taken.”

Sir Philip said: “I am extremely pleased. I have acted properly and in good faith when disclosing proved reserves.”

Though the SEC made no public statement, it apparently also cleared Shell’s former exploration chief Walter van de Vijver and finance director Judy Boynton.

The drama began in January 2004 when Shell disclosed that its oil and gas reserves had been downgraded by 3.9bn barrels — 20pc of the total. Further downgrades followed.

The shares tumbled and two months later Watts and van de Vijver were ousted. Leaked emails from van de Vijver saying he was “sick and tired of lying” inflamed the controversy.

The Financial Services Authority, the SEC and Department of Justice, and various European stock market authorities launched investigations, while angry investors began a wave of lawsuits in the US courts.

The FSA fined Shell GBP17m and the SEC fined it GBP66m. For individuals, the biggest worry was the US Department of Justice, which can bring criminal charges, but dropped its probe a year ago.

Sir Philip defended himself vigorously. An early challenge to the FSA was not successful but last November the UK watchdog ended its investigation.

He argued he relied on “experts around the world” in a “transparent” reporting process and reserve filings had been approved by external auditors.

“I made these arguments to both the FSA and the SEC. Both decided not to bring any action,” he added.

Industry analysts acknowledge that official guidelines on reporting reserves were outdated in the light of modern oilfield technology.

Shell (down 6p at 1898p) was lucky that, after the scandal erupted, oil prices doubled, so that the sharp fall in its share price was quickly recouped, making it difficult for investors to claim long-term losses.

The last major hangovers from the affair are three US civil actions in the New Jersey courts — against Shell, but also naming individuals, including Sir Philip. Shell has made a provision of $500m (GBP263m) to settle one of these actions.

The affair set off historic changes at Shell, where big investors weary of its Anglo-Dutch dual management structure pressed for its unification under a single board.

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