Royal Dutch Shell Group .com Shell name dragged through mud after explosive report


Posted 24 April 04   


LONDON : The closely guarded reputation of Royal Dutch/Shell was left in tatters as British newspapers accused the oil giant of lies and a cover-up after an explosive internal report admitted executives knew of problems with reserves over two years ago.


Shell was left reeling by a rash of damning front-page headlines a day after the Anglo-Dutch group cut its estimated proven energy reserves yet again and ousted a third top executive, chief financial officer Judy Boynton.


The group also published internal memos and emails showing that senior executives were aware that the group was overstating the size of its recoverable energy reserves long before they told investors in January.


In November last year, former head of exploration and production, Walter van de Vijver, having received what he considered an "unfairly critical" performance review from ex-chairman Philip Watts, responded by email:


"I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings."


Another email as far back as February 2002 showed van der Vijver warning Watts that proved reserves of about 2.3 billion barrels did not comply with US regulatory guidelines.


Both executives have since been ousted from the group. Shell insisted there had been no impropriety among employees and fully backed the new management.


"Lies, cover-ups, fat cats and an oil giant in crisis," was the damning front-page verdict of the Independent newspaper, which said Shell was facing the "biggest corporate scandal for almost 30 years".


"Secrets and lies" was how the influential Lex column in the Financial Times saw it.


"Such a cover-up has destroyed the company's long-standing reputation for caution and probity," the business daily added in an editorial comment.


Shell cut its booked proved oil and gas reserves by a total of 4.35 billion barrels, or 22 percent, to 15 billion as of the end of 2002, and to 14.5 billion at the end of 2003.


"Deceitful Shell 'needs ten years' to rebuild exploration business," was the headline in the Times, which called the saga "a tale of lies, intrigue, backstabbing and cover-up."


The internal report "gives a horrible insight into the climate of panic and distrust that engulfed the senior executives of the multinational as they attempted to sweep under the carpet a fundamental problem -- that the company was struggling to find oil," the newspaper added.


Shell shocked investors by announcing in January that it had overestimated its proven oil and gas reserves by 3.9 billion barrels, or one-fifth, sending its shares plunging.


Shell restated its reserves again in March and for a third time on Monday.


Shares in London-based Shell, which owns 40 percent of the group, fell another 0.38 percent at 388.25 pence in early deals on Tuesday.


Netherlands-domiciled Royal Dutch Petroleum Company, which holds 60 percent, saw its stock slip 0.10 percent to 41.55 euros in Amsterdam.


"Lawsuits and so-forth will plague the company, and its former directors, for years to come," said Deutsche Bank analyst JJ Traynor.


The statement "draws a line under reserves downgrades, and leaves the way clear for a new upstream strategy to emerge," he added,


But Shell's 14.5 billion barrels of reserves were some way behind rival BP's 18.3 billion and ExxonMobil's 21.2 billion.


"Short of an acquisition, we doubt that Shell can close the reserves gap meaningfully with BP across this decade, given the considerable flexibility that BP has in its Russia portfolio," Traynor told clients.


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