The Guardian: Shell was warned on output data four years ago
Friday April 2, 2004
The management of oil group Shell was warned by its own planners as much as four years ago that it was being overconfident about future production levels and told this might lead to eventual disappointment for the financial community. One internal document headed "Exploration: Overstated Delivery?" spoke of Shell figures being "very optimistic and unrelated to historical performances".
The damaging revelations were made public by the Wall Street Journal yesterday, and have apparently been passed on to the United States' markets regulator, the securities and exchange commission.
They will make it harder than ever for the Anglo-Dutch energy company to argue that it let the stock market know as early as possible that it needed to adjust City expectations downwards.
In January, Shell revealed a 20% cut in its proven reserves following a review of its assets to meet securities and exchange commission requirements. It made a further reduction last month.
The June 2000 presentation suggested the company might be unable to meet its much-heralded growth targets for oil and gas output, but it was not until 15 months later that Shell told analysts it was slashing these goals.
It cut its 5% production growth target to 3%, but has subsequently seen further deterioration, with output likely to be flat this year.
The documents do not specifically mention the issue of reserves, which is at the centre of the crisis that led to the dismissal of the group's chairman, Sir Philip Watts, and its exploration boss, Walter van de Vijver.
But another warning that the company's executives "run the risk of initiating an over-promise, under-delivery cycle" sits awkwardly with promises which were made publicly, six months later, that Shell was "delivering on promises" and on schedule to meet 5% per annum output growth between 2000 and 2005.
The internal papers are said to have been unearthed by an internal audit team, which made an initial assessment of the problems. Sir Philip and his colleague left the company shortly after this.
A Shell spokesman said he was unable to comment on the allegations.
"We've been asked by the group audit committee to defer responding to issues relating to the facts and circumstances that led to the reserves recategorisation announced on January 9 until completion of its review, currently projected to be within the next several weeks.
"At that time the main conclusions will be made public," he said.
Shell is at present being investigated by the securities and exchange commission and has been asked to meet officials from the justice department in the United States who have the power to bring criminal charges.
The problem related to the booking of reserves has reverberated around the industry, with other companies such as American gas group, El Paso, being the most recent to reveal a 40% cut.
BP and ExxonMobil have made it clear that they are happy with their reserve figures but have also been asked to clarify some numbers by a securities and exchange commission that is determined to ensure there is no repetition of the scandal surrounding American energy trader Enron - which led to accusations that the Wall Street regulator was asleep at the wheel.
Shell is at present being led by Jeroen van der Veer, but there have been questions from analysts and some angry shareholders about why this former director and finance chief Judy Boynton were able to avoid the axe.