Financial Times: 'Audit oil reserves' investors tell Shell: “Two leading activist investors in Royal Dutch/Shell, the scandal-hit oil group, have called on the company to set an example to the industry by providing an annual reserves statement signed off by an external auditor.” (ShellNews.net) 9 Nov 04
By Sundeep Tucker and James Boxell
November 9 2004
Two leading activist investors in Royal Dutch/Shell, the scandal-hit oil group, have called on the company to set an example to the industry by providing an annual reserves statement signed off by an external auditor.
Calpers, the $170bn (£92bn) Californian state pension fund, and Knight Vinke Asset Management praised Shell for unveiling plans to abolish its complex dual-board governance structure but challenged it to introduce "transparent and meaningful" reporting on its reserves.
The call comes two weeks after Shell warned that it could be forced to cut its level of proved reserves, following a 23 per cent cut in its proved reserves base earlier this year, after a partial audit by Ryder Scott, the independent engineer.
There have been calls in the US for big accounting firms to take responsibility for signing off reserves after the Shell reserves scandal. But accountants claimed they lacked the geological expertise and that they could become the target of lawsuits if they signed off on reserves that were found to be incorrect.
Many large oil companies do not submit proved reserves for external auditing or publish details about how they calculate their "expectation" reserves.
The US Securities and Exchange Commission, which governs the reporting of reserves, requires filings only on proved stocks, which do not have to be audited.
Sean Harrigan, Calpers president, said: "Shell should lead the industry forward by raising the bar on how it audits and reports its assets."
Eric Knight of Knight Vinke added: "Providing audited reserves signed off by independent experts would help eradicate inconsistencies in the application of the SEC's standards that have undermined the market's confidence in the sector."
The investors called on Shell to be the first large oil company to publish information on the way it calculated its expectation reserves. Mr Knight said: "Investors focus more on expectation reserves and Shell has the size and critical mass to take the lead on this issue."
Mr Knight said that the company was aware of the duo's views and was considering a response.
But analysts warned that it would be difficult for the industry to find enough external engineers to audit proved reserves.