Forbes.com: Shell confirms U.S. Justice Dept contact

Reuters, 23.03.04, 11:52 AM ET

LONDON, March 23 (Reuters) - Royal Dutch/Shell confirmed on Tuesday that it faced a possible criminal probe by the U.S. Department of Justice (DOJ) over its shock move in January to cut estimated oil and gas reserves.

Sources familiar with the matter said last week the Justice Department had become involved in an investigation, raising the stakes in a crisis that has cost Shell's two top executives their jobs and lost shareholders' billions of dollars of value.

But until this week, Shell officials have said they were not aware of any Department of Justice investigation.

In a statement on Tuesday, a spokesman said the company's lawyers were contacted last Friday by DOJ officials who asked to be cut in on briefings Shell has been providing to Securities and Exchange Commission (SEC) investigators.

"On Friday March 19 a representative of the U.S. attorney's office in Manhattan contacted our outside counsel in the U.S. and asked to be briefed on information we have previously provided to the SEC," he said.

"We have agreed to meet and to do so."

The SEC, the main U.S. stock markets regulator, only has the power to conduct civil prosecutions, while the Department of Justice can bring criminal charges against Shell and its current and former directors if it believes they have broken the law.

Traditionally, when the DOJ gets involved, SEC investigations tend to become subordinate.

A number of class action suits have been brought against Shell as well. These have also been brought in the United States by law firms seeking to represent unhappy shareholders.

Shell's reserves downgrade on January 9 wiped 3.9 billion barrels of oil and gas off its "proved" reserves bookings -- about 20 percent of the total, reducing their theoretical producing life to about 11 years from more than 13.

The immediate impact on company profitability is very small, because 95 percent of the reserves involved have yet to be developed. But analysts and investors are concerned about what the downgrade means for future production prospects.

They are also asking questions as to why the problem took so long to come to light, since some of the over-optimistic bookings were made as far back as 1997. Some have called for management and structural changes at the company in the hope this will ensure no such problem can happen again.

Last week, Shell shook the investment community a second time by announcing a further, albeit much smaller, reserves downgrade.

Copyright 2004, Reuters News Service