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Shell Executives hoodwinked New York financial analysts

By John Donovan

Secret documents published for the first time on the open Internet reveal that a top Executive of the Royal Dutch Shell Group gave blatantly false information when questioned by financial analysts in a presentation in New York.

On Friday, February 7, 2003, Sir Philip Watts, the then Group Chairman of the Royal Dutch Shell Group and his fellow members of the Committee of Royal Dutch Shell Group Managing Directors (the CMD) made a presentation to financial analysts in New York City. The other CMD members’ present were Paul Skinner, Walter van de Vijver, Malcolm Brinded and Jeroen van der Veer. The Group Chief Financial Officer Judy Boynton was also in attendance.

During the Question & Answer session, Frederick Leuffer of Bear, Steams & Co directed a question about Shell’s hydrocarbon reserves to Walter van de Vijver, the then Chief Executive of Shell Exploration & Production (EP). In reference to Shell’s reserve assets, Van de Vijver said:

“… we should not forget that we have these assets in our portfolio that a lot of the competition would die for but that we do not talk too much about them.”

(Extract from Page 36 of the relevant document accessible via the link below which provides a record of the New York presentation, including the Q & A).

Far from being assets that rival oil companies would “die for”, Shell’s proven oil and gas reserves did not exist to the degree claimed.  Eleven months later, Shell announced a downgrading of 3.9 billion barrels, or about 20 percent of its total holdings to a world stunned by news of the scandal. In a BBC TV Money Programme broadcast on 15 July 2004, it was stated that “more investors… were affected by this fraud than any other fraud in history.” The financial regulators fined Shell $150 million. Shell has also had to settle a number of class actions, setting aside $500 million to settle the remaining lawsuit.

Confidential Royal Dutch Shell internal documents being published on what the Financial Times has described as an “anti-Shell” website, prove that at the time Walter van de Vijver gave his thoroughly dishonest and foolhardy response to Frederick Leuffer in the presence of other members of the CMD, some, including Jeroen van der Veer and Malcolm Brinded, were already aware of a question mark over the reserves issue, but chose to remain silent. As a consequence, many people would conclude that they were accomplices in the fraud.

A report by investigators Davis Polk & Wardwell dated 31 March 2004 presented to the Shell Group Audit Committee, revealed that van de Vijver notified Shell’s managing directors in February 2002 that the company’s reserve classification rules did not match those of the U.S. Securities and Exchange Commission and that Shell might have overestimated its reserves by 2.3 billion barrels. The note circulated by van de Vijver in advance of a CMD meeting on 19 February 2002 was the first Shell document that raised potential reserves compliance issues.

Within two months of the warning circulated to the CMD (including van der Veer), Shell filed its 2001 Annual Report on Form 20-F with the SEC.  Jeroen van der Veer signed a Form 20-F declaring that the claimed proven reserves were true, despite being warned in writing to the contrary.

In July 2002, a note for discussion was sent to members of the CMD which now included Malcolm Brinded. In a section entitled “Historical Context,” the July 2002 note stated:

“With the benefit of hindsight, some of the organic revisions made in recent years now appear somewhat aggressive:”

In an attachment to the July 2002 note, van de Vijver and his EP team included a list of operating units that had potential “reserves exposures”, entitled “Hydrocarbon Resource Challenges”.

In November 2003, van de Vijver sent his now infamous email to Watts stating:

“I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings,”

The above quotes and information come from the Davis Polk & Wardwell Report.

The record shows that van der Veer and Brinded were both aware of uncertainties over Shell’s reserves position, yet as indicated, remained silent when van de Vijver made his extravagantly false claim to Frederick Leuffer and other financial analysts in New York several months later, in February 2003.  

Watts, Van de Vijver and Boynton were forced to resign after the Shell reserves fraud came to light in January 2004. The Anglo-Dutch arms of the multinational were forced to merge as a result of shareholder pressure into a unified company: Royal Dutch Shell Plc.

Van der Veer took over as Group Chairman with Malcolm Brinded as his head of EP. Both were presented by Shell spin doctors as the new management team when in fact they were both part of the senior management team involved in and compromised by the reserves scandal.

They have progressed on to other scandals such as the Sakhalin-2 debacle, the stalemate in Ireland with the Corrib project (after the unwise jailing of five Rossport environmental protestors for 94 days), and the Shell employee safety scandal, whereby Shell’s fatal accident statistics are worse even than BP’s. In Nigeria Shell has been compromised because of underhand commercial dealings with militants attacking Shell installations.

The only saving grace has been the one element over which Shell executives have no direct control: the high price of oil generating record profits.

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