The Guardian: Shell finance chief resigns in reserves crisis
Monday April 19, 2004
Shell's chief financial officer today resigned following the publication of an investigation into how the oil group had overstated its reserves by 20%.
Judith Boynton is third senior Shell executive to be forced out by the crisis. The company's chairman, Sir Philip Watts, and its head of exploration and production, Walter van de Vijver, departed last month.
The investigation, undertaken by Wall Street law firm Davis Polk & Wardwell, revealed that both Sir Philip and Mr van de Vijver had been aware of the problem of reserve overstatement in 2001, far earlier than had previously been believed.
It criticised Ms Boynton for taking "virtually no action" to personally investigate the issue of aggressive bookings, preferring instead to rely on Shell's internal processes and the assurances of auditors for accurate compliance with reporting rules.
The investigation also condemned what it called a culture at Shell that led to fears of poor publicity and negative market reaction preventing overbooking problems from being disclosed to shareholders.
On January 9, Shell shocked its shareholders by revealing that it had overstated proven reserves by 2.7bn barrels of oil and 1.2bn barrels of natural gas. In March, the firm revised its downgrading figure to a total of 4.15bn barrels.
Following an independent audit into its global reserves, conducted with a team of current and past employees, Shell revealed the true figure to be 4.35bn barrels. The company will now restate its earnings averages for 2000 to 2003.
The investigation showed that, as early as November 2002, Mr van de Vijver had expressed concerns to exploration and production staff that work undertaken by his department had been tainted by the need to "protect the group reputation externally".
He also highlighted the problems caused by a failure to be "honest about past failures" in overbooking proven reserves.
The reported said "it is clear that both Sir Philip and Mr van de Vijver were alert to the differences between the information concerning reserves that had been transmitted to the public ... and the information known to some members of management".
In one email, sent in November 2002, Mr van de Vijver complained of being "sick and tired of lying about the extent of our reserves issues and the downward revisions because of far too aggressive/optimistic bookings".
In addressing why Shell's executives had failed to reveal the problem of reserve overbooking, the investigation's authors said that there was "no common explanation".
However, there was clear condemnation throughout the report of the "excessive importance" given to maintaining an impressive rate of reserve growth by the company's management .
In 2002, Sir Philip emailed Mr van de Vijver to say that he should "leave no stone unturned" in ensuring a reserve replacement ratio of 100% - a demand regarded as "inconsistent" with the debooking actually needed at that time.
Following the review of Shell's reserves, the company's reserve replacement ratio for 2003 stood at around 60%, and its reserve life at the end of 2003 at 10.2 years.
Jeroen van der Veer, who replaced Sir Philip as chairman, said that publication of the investigation and the reserves review "draws a line under the uncertainties that have surrounded the status of our reserves since January 9".
"The controls we now have in place will be rigorously enforced, and will be subject to far greater levels of scrutiny within Shell," he said.