The Daily Telegraph: Shell audit fears pile on pressure

By Philip Aldrick (Filed: 22/03/2004)

The crisis at Shell gathered pace yesterday as speculation mounted that the oil giant's auditors refused to sign off the accounts.

Malcolm Brinded: not expecting further significant restatements of reserves

Last Thursday the group delayed the publication of its annual report from March 19 to "late May" after revealing a second oil reserves mis-statement since January.

KPMG, Shell's auditor, is thought to have decided not to approve the accounts because of the potential liabilities.

Sixteen US class action lawsuits have already been filed against the company and directors, and the Securities & Exchange Commission has launched an inquiry into the mis-statement. Dutch stock market regulators are also investigating "potential insider trading".

KPMG would neither confirm nor deny speculation in a weekend press report that it had refused to sign off the accounts. A spokesman would only say: "The company has asked us to refer all queries on to them. I'm afraid I cannot comment."

When asked, Shell initially refused to comment. It later put out an official statement that said: "The accounts were not presented to the auditors because of the delay with respect to the reserves data." But Shell also claimed that the board had only taken "the decision to postpone publication of the annual report late on Wednesday night" - just two days before it was due.

At the same time, the annual meeting was postponed from April 23 to June 28. When asked whether the auditors had already indicated to the board that they would not sign off the accounts, the group would not say. KPMG is Shell's joint auditor with PricewaterhouseCoopers.

The Telegraph yesterday reported that PwC has approved the UK accounts but refused to sign off the US accounts. PwC was unavailable and, again, Shell declined to comment.

Earlier this month Shell retained external consultants Ryder Scott to conduct a review of its oil reserves after revealing on January 9 that the level it could be sure of extracting had been overstated by 25pc, or 3.9 billion barrels. Last week it revealed that Ryder Scott had found another overstatement of 470m barrels.

The consultants are still checking the remaining 60pc of Shell's assets and group executives fear the emergence of further overstatements. Malcolm Brinded, the new head of exploration and production, said: "It would be imprudent to give any definitive outlook, but my personal opinion is that we would not expect something of this magnitude from the remainder of the exercise."

The auditors are not legally bound to check the oil reserves but they form part of the notes to the company accounts and concerns about the attendant liabilities may have prompted them to withhold their opinion.

In a bid to improve communications with the City, Shell is this week meeting the Association of British Insurers, which represents several large shareholders.

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