The Guardian: Shell hit by US legal action
By Terry Macalister
Tuesday January 27, 2004
The position of Sir Philip Watts as chairman of Shell has been further weakened after US shareholders launched a legal case alleging the Anglo-Dutch company "deliberately violated accounting rules" by overstating its proven reserves.
The class action filed in a New York district court by lawyers Milberg Weiss Bershad Hynes & Lerach follows the unexpected announcement earlier this month that Shell was cutting its oil and gas estimates by 20%.
The world's second largest oil group said it had not yet been served by any legal documents.
"We have no comment to make on this at this time," a spokesman said in London.
Shares in Shell fell 0.25p to to 359.50p after the announcement about the lawsuit fronted by shareholders Joseph Cohen and Harold Silverman.
"The complaint alleges that the defendants deliberately violated accounting rules and guidelines relating to oil and gas reserves which resulted in a shocking and unprecedented overstatement of oil and gas reserves," according to papers released by Milberg. The case is expected to come to court in around six months.
Shell told a briefing of analysts on January 9 that it had undertaken an extensive review of its reserve base worldwide and needed to downgrade assets in Australia and Nigeria to meet SEC requirements. Shares in the company immediately fell 7% with a sense of frustration increased by the fact that the briefing was given by the investor relations team and not the chairman himself.
Facing calls to stand down from irate shareholders, Sir Philip has been backtracking, admitting in a letter to staff that he may have made a mistake by not leading the briefing himself.
He has promised to mount a full public defence of his decision to reduce the proven reserves base at a briefing for the annual financial results of Shell on Thursday next week.
Tony Alves, an oil analyst with Investec Securities, said that date would be a good time for Shell to announce management changes at the top.
"Sir Philip's position is very weak ... Shell espouses to be a shareholder-friendly company and my view is that if they close ranks behind the current management it will be like saying 'we don't give a damn about you, we know best'," he said.
Fadel Gheit, an oil analyst with the Fahnestock & Co brokerage in New York, believed the legal move was little more than a "PR stunt".
He added: "I would rate their chances of success 1% but that does not take away from the fact that the decision to downgrade reserves is the biggest blunder in the company's history."
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