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New York Times: Shell Settles With Europe on Overstated Oil Reserves

EXTRACT: If, however, the Federal District Court in Trenton, where the class-action suit is being heard, decides at a hearing in June that it has jurisdiction over European investors, the settlement is null. 
Published: April 12, 2007

FRANKFURT, April 11 — Royal Dutch Shell agreed Wednesday to pay European and other non-American shareholders about $450 million in a settlement to help resolve legal disputes stemming from its overstatement of oil reserves.

The money will compensate shareholders for losses incurred when the company’s stock dropped after it disclosed in early 2004 that it had greatly overstated its reserves, a closely watched indicator of an energy company’s health.

“For us it is an important step in closing the legal proceedings,” Beat Hess, the head of Shell’s legal department, said at the company’s headquarters in The Hague. He said Shell did not admit any wrongdoing.

Mr. Hess said the offer would be extended to investors in the United States.

After the restatement, which dropped the estimated value of future revenue by more than $100 billion, the company’s share price plummeted, leading to the ouster of its chief executive.

Shell has since regained its footing, despite having abandoned investments in Russia recently in response to political pressure from the Kremlin.

The settlement is unusual for Europe, which, unlike the United States, does not have the legal recourse of class-action shareholder lawsuits. The investors, which included pension funds like ABP of the Netherlands, which manages pensions for 2.3 million government employees, were able to take advantage of a new Dutch statute on legal settlements, which the Amsterdam Court of Appeals applied for the first time in the area of securities law.

Under that law, settlements can be reached even in the absence of a civil suit, as long as both sides petition the court. The company bargained with about 50 institutional investors from nine European countries to reach the settlement.

A lead counsel in the settlement, Grant & Eisenhofer, said that the case could set a precedent for future shareholder suits.

Shell investors in Europe said that they had opted out of a pending class-action suit in the United States because they believed that there was a risk that the American court system might put them at a disadvantage, with a lower payout or no award at all. An estimated 20 percent of Shell’s shares are held by American investors.

“It seemed a bit awkward under current circumstances that European investors who bought European shares on European exchanges should turn to the U.S. to solve their disputes,” said René Maatman, chief legal counsel for ABP. “We think it would be better to have a well-functioning alternative in Europe available.”

If, however, the Federal District Court in Trenton, where the class-action suit is being heard, decides at a hearing in June that it has jurisdiction over European investors, the settlement is null. Shell and investors here say they do not expect that to happen.

The settlement reimburses shareholders for 10 percent to 13 percent of their losses. European shareholders said they wanted to ensure that the agreement would not damage Shell further and would allow the company to get on with its business.

But some legal experts were surprised that the settlement was not higher.

The TILP Group, a German law firm, has been advising 20 institutional investors that had a combined loss of more than $1 billion. “From that perspective, it seems like a very low settlement,” said Stephan Holzinger, a spokesman for TILP.

The settlement applies to all non-American investors who bought Shell shares on European exchanges from April 1999 to March 2004. It is still awaiting the approval of the Amsterdam court, which Shell estimates could take up to a year.

Shell plans to extend the offer to American investors within weeks.

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