Financial Times: Shell aims to deflect blame over oil reserves
By Carola Hoyos in London and Adrian Michaels in New York
Mar 29, 2004
* Defence to say group was victim of vague US rules
* American regulator still at early stages of probe
Royal Dutch/Shell, the global energy group, is preparing to insist it was not at fault when it wrongly booked 3.9bn barrels of oil and natural gas.
It will claim instead that it was the victim of ambiguous US regulations.
The defence strategy is expected to focus on the Securities and Exchange Commission's rules governing the accounting of proved reserves. The rules date to 1978 and have become more challenging to interpret in light of new technologies and a more active futures market. The SEC has updated the industry on interpreting its regulations at least four times since 2000 and has discussed the issue with companies in private.
Shell would insist it took appropriate measures when the SEC's guidance made it aware of possible problems, said people close to the company's defence.
People following the controversy say the regulations on reserves leave room for manoeuvre and that Shell might have some success in shifting blame.
But they added that Shell's proposed strategy would be difficult to maintain if deeper executive wrongdoing was uncovered or large-scale reserve miscalculations were found to have been reported for a significant period.
The report of an internal audit committee will be central to Shell's ability to shift part of the blame to regulators. If the panel finds evidence that the company was aware of problems long before it made them public on January 9, lawyers may have to change the approach. That report - whose preliminary findings prompted the boards of Royal Dutch and Shell Transport and Trading, the parent companies, to demand the resignations of Sir Philip Watts, chairman, and Walter van de Vijver, head of exploration and production - is expected to be released in five weeks, according to company officials.
The SEC does not comment on individual investigations. But people close to the inquiry said the US regulator was at an early stage in its work. It has not formally interviewed Shell officials.
Shell is being investigated by the SEC, the US justice department and UK and Dutch regulators. It also faces private lawsuits after it reduced its booked proved reserves by 20 per cent in January, explaining that they had been prematurely booked with the SEC as proved and ready to develop.
Jeroen van der Veer, Shell's new chairman, has denied knowing the extent of the reserves problem, but said he was aware of some exposures on reserves bookings. Mr van der Veer, who was head of Shell's chemical business and had little to do with reserves bookings at the time, has said he left his predecessors to deal with the issues. At least one non-executive Shell director has said the boards will ask for Mr van der Veer's resignation if the audit committee's report shows he was aware of the extent of the problems before January 9.
The board is already considering possible candidates for at least a new non-executive chairman. But the type of candidate will depend on whether the Dutch and UK boards agree to be merged into one unified entity as some investors and non-executive board members are advocating.
A unified board would make the position far more attractive and attract higher calibre executives, said one headhunter. If the boards were merged, Mr van de Veer, or his successor - most likely Malcolm Brinded, the new head of exploration and production - would be named chief executive officer.