DAILY TELEGRAPH: Shell earmarks $12m for legal aid: “Shell has been forced to lend $12m (£6.3m) for legal representation to former directors who may have been caught up in the company's oil reserves scandal. The US Department of Justice has launched a criminal investigation into last year's reserves restatement and a shareholder class action has been filed with the US District Court in New Jersey. (ShellNews.net) 1 April 05
By Aaron Patrick (Filed: 01/04/2005)
Shell has been forced to lend $12m (£6.3m) for legal representation to former directors who may have been caught up in the company's oil reserves scandal.
The US Department of Justice has launched a criminal investigation into last year's reserves restatement and a shareholder class action has been filed with the US District Court in New Jersey.
The company declined to identify the directors but said they will be required to repay the loans if they lose their court cases. Large companies such as Shell indemnify their directors and employees against legal action as a matter of course. Former chairman Sir Philip Watts, who has been named in shareholder suits, is eligible to receive the legal aid. He received £1m when he left the company last year.
The loans were detailed in Shell's annual filing with the US Securities and Exchange Commission, which said Shell is negotiating to settle litigation from the company's pension fund members.
The filing also said that Shell replaced only about half the oil it extracted last year, illustrating the tough challenge the company faces to discover a new barrel of oil for every one sold. The company's "reserve replacement ratio" was 49pc, after excluding the impact of asset sales, which was "clearly a concern" and "reflects the exploration strategy in the late 1990s and the group's relatively low investment in the post-1998 period", Shell said. Rival BP's recent replacement ratio is 89pc.
At present production rates, Shell's 11.9billion barrels of oil will run out in nine years. "It has to be a concern [that Shell has] by far the lowest reserves base of any large oil company," one fund manager told Reuters.
The world's third-largest oil producer by market value reiterated its aim to replace all oil produced over the next four years by new discoveries or purchases. The target was adopted after it was revealed Shell had inflated its reserves. Three directors resigned, including Sir Philip.
No senior executive received a bonus in 2003 because of the reserves scandal. But chief executive Jeroen van der Veer was paid €2.65m (£1.83m) last year, of which €1.35m was a bonus. A Shell spokesman said the figure was "bang in the middle" of the guidance given to investors in February, when the company forecast a replacement ratio between 45pc and 55pc.
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