Royal Dutch Shell Group .com

Financial Times: Earlier warning was 'dynamite'


By Andrea Felsted

Apr 24, 2004


Shell revealed this week how its top executive committee was warned that a big slice of its proved reserves was not compliant with the SEC rules in February 2002, almost two years before it announced the overstatement. The revelations came in a summary of an independent report by US law firm Davis Polk & Wardwell into the affair.


It points much of the blame at two top executives: Sir Philip Watts, chairman, and Walter van de Vijver, head of exploration and production, who have since left.


According to Davis Polk, the first warning came in February 2002, in a note from Mr van de Vijver, to Shell's committee of managing directors. In it he stated that there was a possibility that as much as 2.3bn barrels might not comply with SEC regulations.


Sir Philip wanted another report to be made to the CMD but the lawyers' summary said that before this could happen, he directed Mr van de Vijver to leave "no stone unturned" to achieve a 100 per cent reserve replacement ratio for 2002.


On November 9 2003, after receiving what he considered an unfairly critical performance review from Sir Philip, Mr van de Vijver responded by e-mail: "I am becoming sick and tired about lying about the extent of our reserves issues."


Late last year, Shell began the probe that resulted in the January disclosures.


A memo from exploration and production staff on December 2 2003 to Mr van de Vijver said 2.3bn barrels were non-compliant and concluded the SEC filing was "materially wrong".


Mr van de Vijver immediately e-mailed one of its authors: "This is absolute dynamite, not at all what I expected, and needs to be destroyed."


It was not, and in January, Shell announced what was to be the first of three reserves downgrades - that it would have to cut its proved reserves by 3.9bn barrels, or 20 per cent.

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