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Financial Times: Shell pays $353m to settle reserves lawsuits

By Carola Hoyos, Chief Energy Correspondent
Published: April 12 2007 03:00 | Last updated: April 12 2007 03:00

Royal Dutch Shell yesterday took a significant step towards closure on the biggest scandal in its 100-year history. The Anglo-Dutch energy group announced it would pay $353m (£178m) to settle non-US investor lawsuits that sprang up after it was forced to cut its stated oil and natural gas reserves in 2004 by more than a quarter.

The investor groups include institutional investors, such as pension funds, as well as VEB, which represents individual shareholders in the Netherlands, and the Shell Reserves Compensation Fund, a settlement foundation for individual shareholders.

It will be the second-largest securities class action settlement against a European company, behind Ahold’s $1.1bn agreement and ahead of DaimlerChrysler’s $300m deal.

Iain Richards, head of European governance at Morley Fund Management, a UK Shell shareholder, called the settlement “an important step in the process of drawing the Shell reserves misstatements issue to a close”.

The agreement still awaits approval by the Amsterdam Court of Appeals. Shell said the only other outstanding legal matter regarding the reserves scandal now is the class action lawsuit in the US, unless some investors chose to opt out and bring new lawsuits. The company said yesterday it intended to offer the same proportional settlement – or $80m, according to Beat Hess, the company’s legal director – to investors in the US.

In spite of the settlement announcement, Shell continued to deny wrongdoing in the restatement of about 6bn barrels of the reserves it had booked as “proved” with the Securities and Exchange Commission, the US regulator. The debacle led to the resignation of Shell’s three top executives, a restructuring of the dual-listed, dual-headquartered, two-board company, and investigations by the SEC and European regulators.

The SEC later cleared the executives, but the regulators fined the company a total $150m, finding it guilty of market abuse.

Separately, Shell yesterday said it would ask the SEC to distribute to shareholders $120m paid by the company as a “civil penalty settlement”. Shell’s shares lost about 10 per cent after the scandal broke in 2004, but recovered quickly on the back of strong oil prices.

Last year, Shell’s market value even overtook BP’s as its biggest rival plunged into its own crisis following a fatal refinery explosion in Texas City in March2005 and the shutdown of oil production from Alaska’s Prudhoe Bay field.

London-traded shares in Shell were all but unaffected. Analysts said the settlement amount was not material to the company.

Copyright The Financial Times Limited 2007

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