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Financial Times: Shell puts crisis blame on 'human failings'

 

By Clay Harris in London and Adrian Michaels in New York

Apr 20, 2004

 

Top executives of Royal Dutch/ Shell were aware that it was overstating its oil and gas reserves for nearly two years before the news was made public, the Anglo-Dutch oil giant disclosed yesterday.

 

The group sought to blame "human failings not structural deficiencies" as it published e-mails and memos that showed how two of its most powerful board members were feuding about the reserves issue.

 

The two - Sir Philip Watts and Walter van de Vijver - were forced out last month after losing the confidence of the board.

 

Last November, 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 and the downward revisions that need to be done because of far too aggressive/optimistic bookings."

 

Shell suffered a further blow as it cut its proved reserves figure for the third time this year, and said restatements would cut its 2000-03 earnings by an average of $100m (55m) a year. It confirmed that Judy Boynton would step down as chief financial officer after being criticised in an audit report for being "not effective" in her compliance function.

 

Aad Jacobs and Lord Oxburgh, non-executive chairmen of the parent company boards, said a probe by Davis Polk & Wardell, the US law firm, had "revealed disturbing deficiencies in our past reserves reporting practices and the manner in which Shell dealt with those issues".

 

Shell accepted the "difficult findings", he said, and introduced a new regime for reserves accounting and compliance, monitored by external consultants.

 

Lawyers said the steps taken by a company - such as dismissals, co-operation with authorities and reforms - can be crucial in heading off sanctions against the group as a whole compared with individuals involved. But regulators also take account of how high up in a company the improper behaviour reached, and for how long it went on.

 

Shell said proved reserves were now 15bn barrels at the end of 2002 - 4.35bn barrels below the original reported figure - and 14.5bn at the end of 2003. It had audited 90 per cent of fields, and any further cuts would not exceed 150m barrels.

 

Shell withheld the full 450-page Davis Polk report. But the summary shows the tension between Sir Philip and Mr van de Vijver, who felt he inherited unsustainable reserve figures.

 

Lord Oxburgh said there was "no question of financial impropriety" on Ms Boynton's part, but Shell "needed a really strong and robust person to take the job". Tim Morrison, group controller since 2002, becomes acting CFO.

 

Shell's credit rating was cut a notch to AA+ by Standard & Poor's. Royal Dutch shares closed 0.06 lower at 41.59, while Shell Transport was off 3p at 389p.

 

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