The Sunday Telegraph: Auditor warned Shell about bonus and reserves link
By Sylvia Pfeifer (Filed: 11/04/2004)
Shell was warned 18 months ago by one of its own internal auditors about the dangers of linking management bonuses to oil and gas reserves.
However, until only last month the booking of reserves had been a factor in determining the bonuses of executives at the beleaguered oil giant. In January Shell precipitated a furore when admitting it had overbooked its proven reserves by 25 per cent.
It has now emerged that Anton Barendregt, a senior reserves auditor at Shell, issued the warning in a speech to the Society of Petroleum Engineers in September 2002 in Norway. At the conference, Barendregt warned strongly against any use of reserves-related criteria in the performance assessment of staff and management.
He was concerned that the objectivity of reserves estimates could be impaired if there was a link between these estimates and remuneration.
A spokesman for Shell confirmed this weekend that Barendregt had been a senior reserves auditor at the company until retiring earlier this year, adding that he was still employed on a retained basis.
"We've been asked by the group audit committee to defer responding to issues relating to the facts and circumstances that led to the reserves recategorisation announcement on January 9 until the completion of its review, currently projected to be within the next several weeks," said a Shell official.
The disclosure of Barendregt's comments - reported in the Dutch newspaper NRC-Handelsblad yesterday - may increase criticism of Shell's executives, many of whom were allegedly warned as long ago as 2000 that the group risked disappointing financial markets by overoptimistic reporting of its oil and gas reserves.
Shell is currently being investigated by the SEC, the US financial regulator, while the British watchdog, the Financial Services Authority, has begun an informal inquiry.
In a bid to reassure its investors, Shell last month announced that the booking of reserves was no longer a factor in setting bonuses. The booking of new reserves had previously constituted between 5 and 15 per cent of the possible annual bonus for certain staff within the Exploration and Production (E&P) division.
Shell's recently ousted chairman, Sir Philip Watts, headed the E&P division during the period that the misbookings took place.
Separately, The Sunday Telegraph has learnt that four large US pension funds - including Knight Vinke Institutional Partners, which is backed by Calpers, the world's largest institutional investor - have written to Aad Jacobs, the chairman of Royal Dutch, the Dutch arm of Shell, expressing their concerns about the group's complex corporate structure. The funds have requested a meeting with Jacobs and expect to hear back this week.