The Times: Shell chiefs in criminal inquiry over ‘lost’ reserves
From James Doran in New York and Carl Mortished
March 18, 2004
SIR PHILIP WATTS, the ousted executive chairman of Royal Dutch/Shell, is under investigation by the US Department of Justice after the company’s failure to disclose a huge shortfall in its oil reserves.
The DoJ’s criminal investigation stems from a civil inquiry that was launched by the US Securities and Exchange Commission (SEC), America’s market watchdog.
Sources said that other former Shell executives, including Walter van de Vijver, who was ousted along with Sir Philip, are also under investigation, as well as Jeroen van der Veer, Shell’s new chairman, and Judy Boynton, the finance director.
The Department of Justice declined to comment about the inquiry but an SEC source confirmed that the agencies were now working in tandem. “Their (the DoJ) investigators and our investigators are in contact and are keeping each other apprised,” the source said.
The investigations were triggered by Shell’s admission that its estimates of proven oil and gas reserves were about 20 per cent, or 3.9 billion barrels, lower that it had previously stated.
Regulations in the United States dictate that oil companies accurately report their proven reserves in order to maintain their stock market listed status.
At the centre of the criminal investigation is a series of memos allegedly written to the board in February 2002.
The documents allegedly show that the board of Shell, which has an arcane collegiate structure, was told about the shortfall by Mr van de Vijver.
Mr van de Vijver is said to have sent the memos to express concern that Shell’s reporting of its reserves was “no longer fully aligned” with SEC rules.
Shell said last night that it was not aware of the Department of Justice investigation.
News of the criminal investigation came as the company said that it would receive $350million (£193 million) from the sale of its stake in Sinopec, the Chinese petrochemical giant.
Shell acquired some two billion shares in the Sinopec public offering at HK$1.61 and yesterday placed the stock at HK$3.125 per share.
“They think the price has gone too far,” Nick Griffin, an oil analyst at Deutsche Bank, said. “They bought the stake to keep the Chinese Government happy and they are taking the opportunity to book a large profit.”
ExxonMobil remains the sole Western oil major invested in Sinopec, retaining a 3.7 per cent interest acquired in the public offer three and a half years ago. BP sold its 2.1 per cent interest in the business in late February.