The Guardian: Prosecutors ask Shell for explanations - US justice department raises prospect of criminal trial
Wednesday March 24, 2004
The US department of justice has summoned Shell officials to a meeting, raising expectations that former chairman Sir Philip Watts and others could face criminal charges.
The latest setback for the company came as America's securities and exchange commission rejected accusations that it was using outmoded standards to judge oil companies, arguing it constantly updated its rules.
Shell confirmed yesterday that the justice department wanted explanations about the way the Anglo-Dutch group booked reserves with the SEC.
Chairman Jeroen van der Veer insisted last Thursday that he had not been contacted but last night a Shell official said the position changed the following day.
"On Friday March 19 a representative of the US attorney's office in Manhattan contacted our outside counsel in the US and asked to be briefed on information we have previously provided to the SEC. We have agreed to meet and to do so."
Shell is already being investigated by several regulatory bodies but the intervention of US federal lawyers is significant because they can bring criminal proceedings.
The SEC was goaded into a defence of its practices after a stinging attack from Deutsche Bank, which accused it of not keeping up with changes in oilfield technology and ways of assessing reserves.
"We are constantly looking at changing our rules to ensure we do a good job enforcing the fundamental principles of security legislation," said a spokesman at SEC headquarters in Washington.
He refused to be drawn on specific issues raised by Deutsche Bank's head of global oil and gas research, JJ Traynor, such as company use of new seismic data and booking of associate company reserves.
He raised the issues in an open letter to the regulator.
"We have no comment to make at this time," said the SEC spokesman, but he added that pertinent issues raised by industry figures or the media were looked into.
The regulator is at the heart of the crisis surrounding Shell because the oil group cut its reserves dramatically, fearing they were out of line with SEC rules.
Mr Traynor pointed out in his letter that some firms booked 100% of associate company reserves "despite having economic rights to a smaller share, using equity accounting principles and footnotes, creating large distortions in overall reserves levels". He mentioned specifically BP's Trinidad and Tobago associates and Shell's Sakhalin Energy business.
BP books all of its Trinidad oil and gas reserves in the main body of its annual report with a small footnote at the bottom of the page about the figures. This says they include "152m barrels of crude oil and 4,505bn cubic feet of natural gas in respect of the 30% minority interest in BP Trinidad and Tobago" that the British oil group sold to Repsol of Spain. The company said there was nothing unusual about this practice.
Mr Traynor also noted that some partners in these associates are governments which do not disclose information about reserves and may not be audited. "This seems to introduce unaudited reserves into the SEC system."
Some industry experts believe that Deutsche has raised these issues on behalf of the oil industry.
"No oil executive is going to stick his head above the parapet at this time so it's very convenient if a banker does it for them," said one former oil man who asked not to be named.