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The Associated Press: Non-U.S. investors get Shell settlement

April 11, 2007, 2:33PM EST
AMSTERDAM, Netherlands

Royal Dutch Shell PLC said Wednesday it has offered to settle damage claims stemming from the company’s 2004 oil reserves scandal with investors outside the United States for $352.6 million (euro263.8 million) and hopes to settle with U.S. shareholders for an additional $80 million (euro60 million).

Shell general counsel Beat Hess said in a news conference that the offer to shareholders who bought stock from April 1999 to March 2004 was agreed to by major investors, subject to approval by the Amsterdam Court of Appeals.

In addition, Hess said the company “intends to offer the same proportional settlement to investors in the United States, provided the U.S. court overseeing the case approves.”

“For us, it is an important step in closing legal proceedings related to Shell’s recategorization of reserves,” he said.

Shell shares rose less than one percent to close at euro24.97 ($33.48) in Amsterdam.

Peter Paul de Vries, head of the Netherlands’ VEB, which represents small shareholders and helped negotiate the settlement, praised it as “above average” in terms of return to shareholders who lost money as a result of an accounting scandal. But it’s also small enough that it “doesn’t harm new or current investors in Shell,” he said.

Shell’s shares suffered a one-day decline of more than 10 percent when the reserves problem was first made public in January 2004, and several smaller declines followed later that year as Shell was forced to adjust the size of its estimated reserves — an oil company’s most precious asset — five times in all, cutting them by around a third.

The company paid $90 million to settle a lawsuit brought by employee shareholders in 2005.

In January 2006, investors including VEB and the massive Dutch pension fund ABP filed a class action suit against the company in the U.S. District Court in New Jersey. Shell said then it would “vigorously defend itself.” But in the second quarter of 2006, Shell took a $500 million charge against potential claim payments.

Class action suits are historically an American phenomenon, and laws and precedents there are clearer, so foreign shareholders of multinational corporations often file complaints in U.S. courts, even if the company is based elsewhere.

In a similar case in 2005, Royal Ahold NV, the Dutch owner of U.S. grocery chain Stop & Shop, agreed to a $1.1 billion settlement with shareholders who had filed suit in a U.S. court over an accounting scandal.

But Wednesday’s agreement was brokered in Europe, and will be declared binding on all non-U.S. shareholders by the Amsterdam court, under a new Dutch law, Hess said.

The New Jersey court must decide if the Dutch agreement reached for European investors is binding, and then weigh whether the same agreement can be extended to U.S. shareholders. Hess said it may not rule until late this year.

De Vries estimated around 20 percent of Shell shares are held by U.S. investors. He said if U.S. shareholders decide to pursue their own case, and win a proportionately higher settlement, the European settlement will automatically be increased so that shareholders globally will benefit equally.

Hess said individual shareholders should be notified if they qualify for compensation, but the company has also set up a Web site with instructions on how to apply, and advertisements of the settlement will be published in major newspapers.

It will likely take a year or more before money is actually distributed, he said.

Shell said in a statement that it will request that the U.S. Securities and Exchange Commission contribute the $120 million (euro90 million) fine that the company paid it in 2004 to the settlement.

Jay Eisenhofer, a lawyer representing a coalition of funds and institutional shareholders that helped negotiate the settlement, said the SEC would likely agree, since the fine was paid with an eye to shareholder compensation in the first place.

“They have to pay it out to somebody,” he said.

Shell’s 2006 earnings were a record $25.4 billion (euro19.1 billion), up fractionally from $25.3 billion, on sales up 3.9 percent to $319 billion (euro240 billion).


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