Dow Jones Business News: Former Shell Chairman Was Told of Reserve Issues
Mon Mar 8,12:46 AM ET
LONDON -- The ousted chairman of Royal Dutch/Shell (NYSE:RD - News) Group was warned of possible overstatements in the oil titan's petroleum reserves two years before he publicly disclosed them, two people familiar with the situation told The Wall Street Journal.
A memo, circulated to Sir Philip Watts and other senior executives in early 2002, warned that the company's method of booking oil and natural-gas reserves appeared to be inconsistent with U.S. Securities and Exchange Commission (news - web sites) guidelines, these two people said. The memo pointed out that the company might have to revise downward its reserve tally by the equivalent of about one billion barrels of oil, these people said.
On Jan. 9, the world's third-largest publicly traded oil company by market value announced it would cut its oil and natural-gas reserves by about 20%, or 3.9 billion barrels of oil equivalent. A good chunk of the overbooking occurred during Sir Philip's tenure as the companywide head of exploration and production between 1997 and 2001. He became chairman in 2001.
Just taking the oil portion, the reclassified reserves represent $67.5 billion of potential future revenue, assuming moderate oil prices of $25 a barrel. The SEC since has launched a formal investigation into the matter.
Last week, the twin Dutch and British boards of the company ousted Sir Philip and a top deputy. The move came after Shell's audit committee briefed directors about preliminary findings into the reserve revisions conducted by an internal team of investigators and outside counsel. The team found a "trail of communications" showing Sir Philip appeared to have known about longstanding internal questions over the validity of the reserves bookings, according to one of the people familiar with the situation.
Wall Street Journal Staff Reporters Chip Cummins, Bhushan Bahree in New York and Susan Warren in Dallas contributed to this article.