The Wall Street Journal: Shell Boards Meet to Consider Further Action on Reserve Cuts
By CHIP CUMMINS, ALEXEI BARRIONUEVO and DEBORAH SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
April 16, 2004; Page A10
The boards of Royal Dutch/Shell Group's two parent companies will meet today to consider what further actions, if any, should be taken at the oil giant in the wake of a massive slashing of its oil and natural-gas reserves.
The board review is expected to focus on the findings of an internal investigation, including increasingly tense correspondence regarding the reserves between some former top executives. But the boards, which will review a draft report of the findings when they meet in The Hague, may also consider the roles of Shell's current chairman, Jeroen van der Veer, and chief financial officer, Judy Boynton, and what they knew of the problems before they became public in January, according to a person familiar with the matter.
A team of outside attorneys prepared the report under the direction of the audit committee, which includes members of both boards. Chairman Philip Watts and Walter van de Vijver, chief of exploration and production, were ousted by the boards last month after a preliminary briefing by the audit committee.
Directors determined at the time that Mr. van der Veer and Ms. Boynton couldn't have been expected to fully digest the scope of the reserves problem, according to another person familiar with the situation. However, both certified Shell's 2002 annual filing with the U.S. Securities and Exchange Commission, which included the company's reserves tally. As a member of Shell's top management, Mr. van der Veer was briefed about reserve "exposures" -- or potential overbooking -- though he said he wasn't aware of any "incorrect" bookings. Ms. Boynton was also warned of potential overbooking, according to two people familiar with the situation. Both have declined repeated requests for comment.
Internal investigators have uncovered a trail of correspondence between Sir Philip and Mr. van de Vijver and subordinates of the two men about the reserves issue, according to people familiar with the situation. One e-mail was written by Mr. van de Vijver in response to a late 2003 report by Frank Coopman, then chief of finance at Shell's exploration and production business, the unit responsible for reserves booking, according to one of these people.
Mr. van de Vijver had asked Mr. Coopman for some numbers concerning the reserves issue, which was being reviewed internally at the time, but received instead a formal report from him with "premature conclusions," according to this person. In the e-mail, Mr. van de Vijver wrote of the report: "This is not at all what I expected. It needs to be destroyed," according to another person familiar with the e-mail. This person said the e-mail continues that executives are "only at this point flagging issues," adding "we have to look at this very closely and decide what to do."
The report wasn't destroyed in the end, and there isn't any indication that other documents have been destroyed, according to people familiar with the various probes. The e-mail is among many documents that have been turned over to outside investigators, including the SEC and the U.S. Justice Department.
The trail of correspondence also reveals increasing tension between Sir Philip and Mr. van de Vijver, according to people familiar with the situation. Communications between the two indicate that Mr. van de Vijver raised the reserves issue repeatedly with Sir Philip and sought ways to fix the problem, but didn't take appropriate actions to raise the visibility of the issue inside the company, including to independent board members, according to a person familiar with the situation.
In a statement earlier this week, Mr. van de Vijver said he "led the charge" to communicate the issue within the company and briefed its "committee of managing directors" on reserves problems he found as early as 2001. "While respecting protocol regarding communications within the company, I also spoke with others in the company, outside of CMD, about the health of the [exploration and production] business and reserves matters in general," he said. Mr. van de Vijver's statement also will be considered by the boards Friday, according to a person familiar with the situation.
Last week, Shell said it named another executive to succeed Mr. Coopman. In October, Mr. Coopman gave a briefing on reserves issues to Shell's audit committee, but he didn't disclose any major problems with the company's bookings, according to a person familiar with the situation. It is unclear whether Mr. Coopman was aware of the scope of the booking problems at the time.
Board members learned of the reserves problem only after Shell managers called directors in late December, asking them to attend an emergency January board meeting, this person said. Shell has declined to make Mr. Coopman, who remains at the company, available to comment.
--Susan Warren contributed to this article.
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