The Wall Street Journal: Shell Ex-Chairman Receives $2 Million Severance Payment: "Reserves are an oil company's most valuable asset"
Posted 26 June 04
LONDON -- Royal Dutch/Shell Group of Cos. has paid former Chairman Philip Watts, who resigned in the wake of the company's embarrassing overstatement of its proven oil and gas reserves, a lump-sum severance payment of nearly $2 million, the company said today.
Mr. Watts resigned in March, and his payment was based on his salary as an employee until his normal retirement date in June 2005.
When Mr. Watts resigned, the company said he did so in response to the board's wish for "a change of leadership due to a loss of confidence."
The company stunned the oil industry earlier this year when it cut its estimate of proven oil and gas reserves by 20%. Since then, it downgraded its reserves estimate three more times, cutting them by a total of 4.47 billion barrels, or 23%.
Reserves are an oil company's most valuable asset, and any reclassification can affect its stock price. The Securities and Exchange Commission, the Justice Department and European regulators are investigating Shell's overstatement.
A Shell spokesman said today the board decided the severance payment was appropriate on the basis of the company's respect for its long-term employees. Mr. Watts joined Shell in 1969. Meanwhile, two U.S.-based pension funds filed suit against Shell today in state court in New Jersey seeking changes in the company's corporate structure, as well as monetary damages.
The suit, which seeks class-action status, says that company officers violated the U.S. Sarbanes-Oxley Act by allowing the Shell Group to operate without adequate internal controls.
In addition to Mr. Watts's departure, the reserves overstatement led to the resignations of head of exploration and production Walter van de Vijver and finance chief Judith Boynton.
Shell said Friday no director's fees were paid Mr. Watts for the period between his resignation and normal retirement date, that he received no performance-related annual bonus for 2003 or 2004, and he forfeited some stock options and share grants. The spokesman, speaking on condition of anonymity, declined to comment on whether the company contemplated any further action regarding Mr. Watts.
The exercise term of Mr. Watts' remaining 2,847,000 stock options has been shortened, so that they expire five years after his resignation or earlier. In addition, Mr. Watts has the legal right to a pension of £84,070 ($153,360) per year under the Shell pension plan, which he contributed to for 35 years.
The Royal Dutch/Shell Group is considering unifying its corporate structure by uniting the management boards of its two parent companies. It hopes to restore investor confidence in the company.
Shell has an unusual structure in which Royal Dutch Petroleum Co. of the Netherlands controls 60% of the group and Britain's Shell Transport & Trading Co. PLC holds the remaining 40%. Mr. Watts was chairman of the Shell Transport & Trading.
The lawsuit was filed by the Unite National Retirement Fund, based in New York, which represents textile and laundry workers, and the Plumbers and Pipefitters National Pension Fund, based in Virginia. It was filed in state Superior Court for Middlesex County, in New Brunswick, N.J. Other class-action lawsuits have been filed in U.S. federal courts.
A Shell spokesman in London, Andy Corrigan, said the company hadn't yet seen the lawsuit and doesn't comment on pending legal matters.
Copyright © 2004 Associated Press