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The Scotsman: Shell hit with US lawsuit for 'rule breaking'


Tue 27 Jan 2004


SHELL, Europe’s second-biggest oil group, has seen a class action lawsuit filed against it in the United States which accuses the firm of overstating its oil and gas reserves.


The suit, filed by legal firm Milberg Weiss Bershad Hynes & Lerach on behalf of shareholders, claimed Shell "deliberately violated accounting rules and guidelines" by saying it had more proven reserves than it actually had.


No indication has been given as to what damages the law firm is seeking on behalf of Shell investors.


The legal action, filed in the district of New Jersey against the company and its senior directors under the Securities and Exchange Act of 1934, follows Shell’s shock announcement earlier this month that it had overestimated its proven reserves by 20 per cent.


Proven reserves are a measure of an oil company’s value and future growth potential. Among those named in the suit are chairman Philip Watts and chief financial officer Judy Boynton.


According to MWBH&L, the lawsuit centres on the downgrade being at odds with the company’s existing filings that are listed with US regulator the Securities and Exchange Commission.


"The complaint alleges that the defendants deliberately violated accounting rules and guidelines relating to oil and gas reserves, which resulted in a shocking and unprecedented overstatement of oil and gas reserves," the statement said.


Shell announced on January 9, following an internal review, that it was shifting 3.9 million barrels of oil and gas finds which were previously booked as proven to categories on its books that were less certain with regard to commercial exploitation.


The main changes were primarily connected with reserves from between 1996 and 2002 and related mainly to reserves in Nigeria and the Gorgon joint-venture project in Australia with ChevronTexaco and Exxon Mobil.


That left the oil group with between ten and 11 years of guaranteed production compared with about 13-14 years previously.


Analysts said the re-evaluation has had a negative effect on the firm’s share price and dented confidence in Shell’s management.


Law firms file class action suits brought by a few clients, but on behalf of an entire group of potential plaintiffs. MWBH&L - which is also involved in a class action claim against Adecco, the Swiss recruitment firm beset by accounting concerns - has invited Shell investors to join the claim and serve as "lead plaintiff".


Shell spokesman Andy Corrigan said the company had no immediate comment. But in a letter to Shell staff earlier this month, Mr Watts said there had been no evidence to suggest any willful mis-stating of the reserves, adding that the company had made the statements on its reserves in good faith.


• Sibneft, Russia’s fifth largest oil firm, which is in the process of divorce from bigger partner Yukos, said it planned to maintain healthy oil output growth at 20 per cent this year.


The firm said it had produced 31.45 million tonnes (632,000 barrels per day) of crude in 2003, up 19.4 per cent year-on-year.


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