TimesOnLine: Beginning of the end

April 19, 2004

Today's revelations will allow Shell to focus on its future but will not bring to an end its debacle over reserves as the oil giant might hope. By Sally Patten, Deputy Business News Editor

"Congratulations to Jeroen van der Weer, the Shell chairman, for having what must be one of the most secure positions in business.

"The oil giant may have ousted his predecessor, Sir Philip Watts, as it investigated the reasons behind a damaging reassessment of reserves. With him went Walter van der Vijver, Shell's head of exploration and production.

"The reassignment of a divisional finance chief was announced last week, and this morning the departure of Judith Boynton as group chief financial officer was confirmed.

"The moment has come, however, for the guillotine to stop.

"Also revealed this morning was a document detailing the mistakes and cover-ups behind the reserves debacle. Current board members escaped blame. So Mr van der Weer can continue in his job knowing that, from now on, any poor performance can be pinned on directors already sacrificed. Investors will, unless Shell's performance deteriorates perilously, prize stability over further sacrifice for a considerable time.

"And his record in charge so far has been encouraging. In ordering the quick, independent investigation whose findings were published today, Mr van der Weer has discovered where the blame lay for the reserves fiasco.

"In publishing the report, he has reassured investors that all accounting timebombs ticking within Shell's exploration division have been discovered and defused.

"Furthermore, the report shows that Shell's actions in forcing out Sir Philip, Mr van der Vijver and, now, Ms Boynton were justified. Sir Philip, as head of exploration and production until his promotion 2001, appears to have been remarkably optimistic in booking reserves. Although Mr van der Vijver gains sympathy for giving regular warnings over the figures, his lack of appreciation over their broader significance is surprising.

"Ms Boynton, criticised for not initiating her own check-ups, would appear unlucky were it not for an e-mail in September 2002 from Mr van der Vijver warning her of the reserves crisis.

"So, after three months of furore, the company can 'draw a line' under the reserves affair, Mr van der Weer said.

"'Despite the difficulties of recent months, Shell is a sound and profitable business,' he added.

"Investors seem to agree, with shares in the company hardly shifting despite this morning's revelations and remaining, indeed, within 10 per cent of their 12-month high.

"What Mr van der Weer sidestepped, however, was a figure showing that, after the revisions, Shell last year replaced in proven reserves only 60 per cent of the crude it produced. At such a low replacement rate, doubts remain about a 'sound and profitable' future.

"The company also faces a series of investigations, most notably from the Securities and Exchange Commission in the United States and lawsuits from American investors angry at being misled.

"Shell's brighter future will continue for some months to be clouded by its murky past.

"While Mr van der Weer's position is secure, it will not be comfortable."

http://business.timesonline.co.uk/article/0,,8209-1080452,00.html