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The Independent: Shell chief fails to clear air over ousting of Watts


By Michael Harrison Business Editor

06 March 2004


The new chairman of Shell refused yesterday to clear his predecessor, Sir Philip Watts, and the company's former head of exploration, Walter van de Vivjer, of improper behaviour over the misbooking of oil reserves.


Jeroen van der Veer, who took over as chairman on Wednesday after the sacking of the two men, also said that any changes Shell might make to its much-criticised dual-board structure would not be implemented until April 2005 at the earliest.


Asked repeatedly whether an internal review of the reserves re-classification being carried out by Shell's audit committee had uncovered any evidence of illegal or improper conduct on the part of Sir Philip or Mr van de Vivjer, Mr van der Veer replied that the two men had gone because the board had lost confidence in them. Mr van der Veer, who took over as chairman on Wednesday, said the review was continuing. "In the circumstances, I like to be prudent," he added.


The review, which is being conducted by a working group made up of an outside law firm, Davis, Polk and Wardwell, and current and former executives of Shell, is due to complete its investigation in the next few weeks.


Shell has already said the "loss of confidence" which led to the removal of Sir Philip and Mr van de Vivjer stemmed directly from the findings, which were emerging from the audit committee review.


Mr van der Veer said yesterday the results of the review would be passed to the US Securities and Exchange Commission, which has launched its own investigation, and would also be made public so that investors could see exactly what had taken place.


The company shocked the financial markets and the oil industry in January by cutting its proved reserves by 20 per cent or 3.9 billion barrels. The overbooking of reserves took place between 1996 and 2002. During most of that time Sir Philip was head of exploration and production and so directly responsible for the booking of reserves.


The audit committee review is thought to have paid particular attention to the booking of reserves in the Gorgon field - a giant gas discovery off the north-west coast of Australia. In 1997, shortly after Sir Philip took over as head of E&P, Shell booked its share of the field, some 560 million barrels, as proven, even though neither of its partners in Gorgon, Texaco-Chevron and Exxon-Mobil, chose to do likewise.


It has also emerged that in Shell's regulatory filing to the SEC, it incorrectly grouped the Gorgon reserves in the category of "revisions and reclassifications" and not "extensions and discoveries" - where the booking of the field would have been noticed immediately.


Mr van de Vivjer said at Shell's annual results last month that the mistake was an "embarrassment". However, analysts have questioned how a company like Shell could have come to make such a basic error given that Gorgon accounted for a third of all the proved reserves booked by Shell that year.


During a 45-minute teleconference yesterday, Mr van der Veer said that Shell's reputation has been "dented" by the fiasco and sought to reassure investors that the company was in a "listening mode" in response to demands that it modernise and simplify its arcane and antiquated board structure. He said that although he was proud of Shell's governance arrangements, which had served it well for nearly a hundred years, the company had to ask whether they were still appropriate.


However, he made it clear that no changes would be made before April next year when new Dutch standards of corporate governance, known as the Tabaksblat Code, come into effect.

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