HoustonChronicle.com: British regulator announces probe of Shell parent
April 23, 2004, 4:13PM
LONDON -- Britain's market regulator announced today that it has launched a formal investigation into the British parent company of the Royal Dutch/Shell Group of Cos.
The Financial Services Authority told the London Stock Exchange that it is officially probing "various issues surrounding recent announcements made by Shell Transport & Trading Co."
Shell, which was notified of the probe by the authority, issued a statement saying: "We are continuing to cooperate with the FSA to assist them in concluding their inquiry expeditiously."
The announcement of the formal investigation followed weeks of informal inquiries by the authority and appeared to result from evidence this week that Shell executives had concealed largely inflated oil and gas reserve figures for at least two years.
On Monday, the oil giant released excerpts of a 463-page, Shell-commissioned investigative report written by U.S. lawyers at Davis Polk & Wardwell. It detailed an increasingly acrimonious disagreement between Shell's former chairman, Philip Watts, and its former head of production, Walter van de Vijver, over public disclosure of the exaggerated reserve figures.
The report was the latest development in a series of setbacks that began more than three months ago when Shell said it had overestimated its proven reserves of oil and gas by 20 percent. Watts and van de Vijver are two of four top Shell managers who have lost their jobs since the beginning of March.
The Financial Services Authority's formal investigation is another legal blow to Shell, which is facing similar scrutiny from the U.S. Securities and Exchange Commission and the U.S. Department of Justice. Shell also could face class-action lawsuits in America.
An analyst said today that he wasn't surprised by the intensification of the FSA's probe. "This is not a surprise in light of the information that came out this week," Peter Nicol, an analyst at ABN Amro, told Dow Jones Newswires.
Before formalizing its probe, the FSA said that it has been "gathering and analyzing documentary evidence, and has been in close contact with the relevant overseas regulators throughout."
In accordance with standard FSA practice, "no further statements will be made until this work reaches a conclusion," the regulator said. It statement was released after the final bell on the London Stock Exchange on Friday.
Shell Transport & Trading Co. shares closed down 1.5 pence (2.7 cents) at 386.5 pence ($6.95) in trading in London.
Shell first came under scrutiny in January, when the company announced its confirmed oil and gas holdings were 3.9 billion barrels smaller than it had previously claimed. Shareholders were outraged and the resignations of top Shell officials began.
Since then Shell has further reduced its estimates of "proven" holdings, mostly recently on Tuesday, to bring the total downgrade to 4.85 billion barrels.
Reserves are an oil company's most valuable asset, and any reclassification into less certain categories can hurt its stock prices.