Daily Telegraph: Shell's lies over reserves spark FSA investigation
By Caroline Muspratt (Filed: 24/04/2004)
The Financial Services Authority has launched a formal investigation into the disgraced oil giant Shell after it emerged this week that former executives had lied about the company's oil and gas reserves for years.
It said it has been conducting inquiries "for some weeks" and has been gathering and analysing documentary evidence. It is formally investigating "various issues surrounding recent announcements" made by the company.
A spokesman for the FSA said the investigation had begun "when the story broke in the press" and that Shell bosses were co-operating fully.
The oil company first announced a cut in its reserves in January, claiming to have overestimated its proven reserves by 20pc or 3.9billion barrels. This week it said this had grown to 4.35billion barrels, or 22pc.
A spokesman for Shell said yesterday: "We continue to co-operate with the FSA to assist them in concluding their inquiry expeditiously."
An internal report earlier this week revealed that former executives had been aware of the true state of the company's reserves for two years. The report, by US law firm Davis Polk and Wardwell, detailed a damaging series of e-mails and memos between sacked head of exploration Walter van de Vijver and former chief executive Sir Philip Watts.
In one, dating as far back as September 2002, Mr van de Vijver told the committee of managing directors: "Given the external visibility of our issues . . . the market can only be 'fooled' if 1) credibility of the company is high, 2) medium and long-term portfolio refreshment is real and/or 3) positive trends can be shown on key indicators."
The FSA's remit covers listing rules and the market abuse regime and it can prosecute over misleading statements and practices. Under the Financial Services and Markets Act 2000, individuals can face up to seven years in prison and a fine for making a statement, promise or forecast known to be misleading.
The FSA is likely to scrutinise further correspondence between Shell bosses which admit "lying" about the state of the company's reserves.
In November 2003 Mr van de Vijver wrote to Sir Philip: "I am becoming sick and tired about lying about the extent of our reserves." In February that year he admitted the company had been "promising that future reserves additions are expected in 2003 . . . whilst we know that there is some real uncertainty around this."
The Securities and Exchange Commission, the US regulator, and the US Justice Department have also begun investigations. The FSA said it has been "in close contact with the relevant overseas regulators throughout".