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Los Angeles Times: SEC Launches Formal Probe of Shell Oil

 

By BRUCE STANLEY, AP Business Writer

19 Feb 04

 

LONDON Royal Dutch/Shell Group of Cos. faced a fresh setback Thursday in its campaign to win back the confidence of investors after U.S. regulators launched a formal probe into the company's overstatement of its oil and gas reserves.

 

The U.S. Securities and Exchange Commission had been making an informal inquiry into Shell's surprise announcement on Jan. 9 that it was downgrading 20 percent of its proved reserves and reclassifying them into less certain, unproved categories. The SEC has now decided to ramp up its inquiry and hold a formal investigation, both Shell and the SEC said.

 

Shell's announcement last month about its reserves worried shareholders and led some to call for the resignation of the company's chairman, Sir Philip Watts.

 

Shell spokesman Andy Corrigan said he believed the SEC's decision to intensify its inquiry was "fairly standard" and emphasized that the probe was not a criminal investigation. Shell would continue to cooperate fully with the SEC, he said.

 

An SEC official in Washington said a formal investigation means regulators have reason to believe laws may have been violated but added that the SEC has yet to reach any conclusions. The official spoke on condition of anonymity.

 

A formal probe gives the SEC legal powers to subpoena documents and testimony. The SEC has the power to investigate Shell, which is headquartered in London, because the company's shares are traded in the United States, on the New York Stock Exchange.

 

Shell's stock, which plummeted after it downgraded its reserves, appeared for now to shrug off this latest development. Shares in Shell Transport & Trading Co. PLC, the British component of the Anglo-Dutch group, finished the day 0.78 percent higher at 352.5 pence ($6.70) on the London Stock Exchange. In trading on the NYSE, Shell Transport's U.S. shares were up 46 cents to close at $40.78.

 

Some analysts suggested that the SEC's action would have little practical impact on the company.

 

"It's not unexpected because the initial informal review would probably have raised further questions," said Tony Alves of Investec Securities in London. "I would say it's 99.5 percent a reputational issue."

 

However, the SEC's decision to look more closely at Shell's decision does raise questions about why management overestimated its reserves in the first place.

 

Corrigan said he didn't know how long the formal investigation would last, nor could he comment on what the worst-case outcome for Shell was likely to be.

 

Watts, Shell's chairman, acknowledged earlier this month that Shell's reclassification of reserves had caused "concerns and disquiet" among investors. However, he insisted that it did not "fundamentally affect" the company's volumes of oil and gas and refused to step down.

 

About half of the downgraded reserves are located in Nigeria and Australia. 


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