Ireland On-Line: Shell faces investigation from UK's FSA

26/04/2004 - 07:12:32

The UK's Financial Services Authority is formally investigating oil giant Shell following the shock downgrade of its reserves earlier this year, it was announced last night.

In a statement to the London Stock Exchange, the FSA said it was probing issues surrounding recent announcements by Shell.

An independent report last week severely censured Shell chairman Philip Watts and head of exploration and production Walter van de Vijver for appearing to know reserves did not meet market rules as far back as 2001.

Documents disclosed in the report showed a series of clashes between the men as concerns mounted that oil and gas stocks had been aggressively overbooked during Watts’ time as head of exploration and production.

On one occasion, Mr van de Vijver is reported to have emailed: “I am becoming sick and tired about lying about the extent of our reserves issues.”

The UK's FSA said last night it had been conducting inquiries into the matter for some weeks, including gathering and analysing documentary evidence, and had been in close contact with the relevant overseas regulators.

It said Shell had been notified of the investigation and that no further statements would be made until the work reached a conclusion.

Shell’s 20% downgrade of its reserves cost the jobs of Watts and Mr van de Vijver.

The report commissioned by Shell reported that when staff sent a memo in December seeking full disclosure of its reserves woes, Mr van de Vijver called for its destruction on the grounds that it was “absolute dynamite” and “not at all what I expected”.

Mr van de Vijver issued a statement on April 13 defending his role, saying he raised the issue of possible over-booked reserves promptly with other senior managers.

Following downgrades, Shell’s reserves for 2002 are now 4.35 billion barrels lower than previously thought.

There is also a further reduction of 500 million barrels for last year.

The impact on earnings from these changes averages 100 million US dollars (€84m) for each year since 2000.

A spokesman for Shell said tonight: “We are continuing to cooperate with the FSA to assist them in concluding their inquiry expeditiously.”

Shell is also facing a number of class action lawsuits in the US over the reserves downgrade and is being investigated by Dutch regulators over potential “insider trading”.