The Sunday Times: Shell backtracks on lawyers' damning report
Lucinda Kemeny and Paul Durman
April 25, 2004
SHELL, the embattled oil giant, will seek to repudiate elements of last week’s damning report into its reserves crisis as it fights allegations that it lied to investors.
A report by Davis Polk & Wardwell, the American law firm, led to the resignation of Judy Boynton, Shell’s chief financial officer. Although the findings were accepted, executives are worried that it leaves Shell exposed to the market-abuse inquiries by the Financial Services Authority, the Securities and Exchange Commission and the US Department of Justice.
This is because the report gives the impression that Sir Philip Watts, the former chairman, made a concerted effort to hide the true state of Shell’s oil reserves. Insiders said that Shell planned to pursue a placatory line with the regulators, in effect playing down the report’s criticisms. This will add to doubts about Shell’s response to the reserves crisis and its willingness to draw lessons from its mistakes.
Sources said that the report, while factually correct, was too categoric on certain issues and ignored the complexities of consensual decision-making in a big company.
In January Shell was forced to announce that 3.9 billion barrels of oil could no longer be regarded as “proven” — wiping 20% off its oil reserves. A further downgrade was subsequently required and Davis Polk was hired to determine exactly what went wrong. The published summary of the report draws heavily on colourfully worded e-mails from Walter van de Vijver, Shell’s former head of exploration and production (E&P), to his boss and others, but does not include Watts’s response to the allegations against him.
Yet it is understood that Watts and his team were in constant dialogue with E&P staff to find out why production was falling short of expectations. Years of under-investment and a concentration on small fields left Shell with a falling production rate, a problem likely to have started before Watts’s time as head of exploration and production, from 1997 to 2001.
The Association of British Insurers has hit out against the American regulators that stopped Shell from publishing the entire report.