HoustonChronicle .com: Criminal investigation possible, Shell confirms

March 23, 2004, 11:51PM

Reuters News Service

LONDON — Royal Dutch/Shell confirmed Tuesday that it faced a possible criminal probe by the U.S. Department of Justice over its move in January to cut its estimated oil and gas proven 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 prepared statement issued Tuesday, a spokesman said the company's lawyers were contacted last Friday by Justice officials who asked to be cut in on briefings Shell has been providing to Securities and Exchange Commission investigators.

The SEC 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, the when the Justice Department gets involved, SEC investigations tend to become subordinate.

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

Shell's reserves downgrade on Jan. 9 wiped 3.9 billion barrels of oil and gas off its proven 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, because some of the overly 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.

http://www.chron.com/cs/CDA/printstory.mpl/front/2464993