The Guardian: SEC under attack over Shell
Terry Macalister and Heather Tomlinson
Tuesday March 23, 2004
Deutsche Bank comes to oil company's defence
A leading investment bank has come to the support of Shell and accused the US securities & exchange commission of using "outdated" standards to assess oil and gas company reserves.
Deutsche Bank said the entire energy sector could find it harder to raise cash in future because of over-conservative policies being applied by the US regulators, as Shell was being forced to fend off heavy criticism from fund managers at a meeting in London organised by the Association of British Insurers.
Shares in both Shell and BP fell by 2.5% as investors worried that difficulties which have undermined the credibility of the Anglo-Dutch group could spread to the rest of the sector.
J J Traynor, managing director of global oil and gas research at Deutsche Bank, argued that the SEC guidelines were "outdated with respect to technology trends", while the burden of compliance was an unnecessary cost.
In an open letter to the US regulator, he said: "The discrepancy between these guidelines and industrial reality, and the market climate following the Enron affair, is generating an unwarranted external push on the oil companies to underbook reserves and over-amplify costs. This has the knock-on effect of reducing market values and negative implications for oil companies' ability to raise finance."
Shell's decision to downgrade its proven recoverable reserves figures this year has led to the exit of chairman Sir Philip Watts and threats of legal action. Worries about BP follow revelations on Friday that it has booked a much higher figure for reserves on Norway's Ormen Lange field than Shell, even before the latter's downgrade. BP yesterday insisted it would not be changing its figures, saying they met SEC guidelines and standards.
But another oil analyst said there was now widespread confusion across the industry about which figures to believe. Mr Traynor said there was no crisis, just a problem about how the SEC might interpret the figures.
Deutsche, whose asset management arm has a holding in Shell, said oil firms should be able to make their own assessment of reserves based on technology and market conditions, not just on common standards.
Shell described the meeting between its senior UK non-executives and key shareholders such as Standard Life Investments as "constructive" and promised that all views on reforming the company structure would be considered. Standard Life declined to comment but an ABI spokes woman said: "We are pleased that the non-executive directors of Shell Transport are listening to the views of shareholders. This is, however, a long-term dialogue."
Investors pushed for a new structure at the top of Shell which is a complex relationship between the Dutch and UK operations and managers.
One source close to the discussions said there was "sympathy" from chairman Lord Oxburgh for a plan to simplify the structure, although there were hints the Dutch side of the group was less sympathetic.