Reuters: Shell brings in lawyers for reserves audit
By Andrew Callus
Thu 4 March, 2004 12:37
LONDON (Reuters) - Royal Dutch/Shell, which sacked its boss yesterday for overbooking oil and gas reserves, will complete an internal reserves audit within weeks and has brought in outside lawyers to help, a spokesman says.
The legal help indicates that Shell takes seriously the possibility of a full-blown legal battle over the downgrade.
The Anglo-Dutch energy giant said on Wednesday Chairman Phil Watts and his right hand man Walter van de Vijver were told to go because of "facts and circumstances" surrounding the review.
"The review is still ongoing and is expected to conclude in the next few weeks," said the spokesman on Thursday. "The results will be shared with the SEC and other regulatory authorities... Outside counsel are involved."
On January 9, Shell shocked investors by saying that 20 percent of the reserves on its books as "proved" were not so certain of commercial viability after all.
Its audit committee of non-executive directors launched an immediate review of bookings and the reasons behind the 3.9 billion-barrel cut in reserves.
Some analysts feared that Wednesday's sackings suggested the review had turned up more bad news for the company that could outweigh any positive sentiment over a "fresh start".
The company's shares, which had already partly recovered the slide that followed January 9, rallied briefly on Wednesday as investors who had called for Watts to go cheered their victory.
But the climb was limited and short-lived. The twin London- and Amsterdam-listed stocks closed up less than two percent, and were underperforming their peer group on Thursday with falls of just over one percent each.
Analyst JJ Traynor of Deutsche Bank believes the clearout -- that puts veteran chemicals chief Jeroen van der Veer into the top job and respected gas and power chief Malcolm Brinded in the number-two slot -- was positive. But he voiced concerns that the audit may have turned up something nasty.
"Shell's audit committee reviews risk management and accounts for the group, and may well have uncovered malpractice here, leading to their recommendation for management changes," he said in a research note.
Some U.S. law firms have already launched class-action suits on behalf of unhappy shareholders, and U.S. regulator the Securities and Exchange Commission (SEC) has launched its own formal investigation, potentially a step towards legal action.
Watts said as recently as a month ago that he would not quit, despite investor pressure for management changes, and that the group's twin boards were backing him.
But on Wednesday he was fired along with Van de Vijver -- who had been seen more as a potential successor than a can-carrier for the debacle.
Watts ran the oil and gas arm for four years up to 2001 -- the period in which most of the overbookings were made. Van de Vijver took over the core division when Watts was promoted to Chairman of the Committee of Managing Directors -- Shell's top executive post.
Shell officials said on Wednesday: "The group audit committee review of the facts and circumstances surrounding the announcement on January 9 led the board to seek changes to the group management."
The audit committee is made up of six non-executive directors drawn from both sides of the Anglo-Dutch group.