The Independent: City watchdog launches Shell investigation

By Michael Harrison, Business Editor

16 March 2004

Shell confirmed yesterday that it is in contact with the main City regulator, the Financial Services Authority, which is carrying out an inquiry into the oil giant's reserves downgrade.

The FSA inquiry is believed to focus on whether the Anglo-Dutch company made timely disclosures to the financial markets about the decision to cut its estimate of proven reserves by 3.9 billion barrels or 20 per cent.

The shock downgrade on 9 January has already led to the sacking of Shell's chairman, Sir Philip Watts, and its head of exploration and production, Walter van de Vijver, and there is continuing speculation over the positions of the new chairman, Jeroen van der Veer, and the finance director, Judy Boynton.

Shell says it informed the market of the downgrade at the earliest opportunity once its review of proven reserves had been completed. However, it has subsequently emerged that senior executives, including Sir Philip, had received warnings as long ago as early 2002 that Shell might need to slash its reserves estimate to comply with new guidelines issued by the US Securities and Exchange Commission.

The FSA inquiry is running alongside a full investigation being undertaken by the SEC and other inquiries by the European stock exchange Euronext. A Shell spokesman said: "We have been in contact with the FSA in line with our continuing obligations and continue to work with them."

Reports that Shell was considering hiring Harvey Pitt, the former SEC chairman, as a consultant to help in its dealings with American regulators, are wide of the mark. The spokesman said: "Shell has not retained the services of Harvey Pitt or his firm and the matter is not under consideration."

In response to speculation about the future of Shell's new chairman, the spokesman said the group did not anticipate making any further management changes "at this time".

An internal review of Shell's reserves reclassification being carried out by the board audit committee is due to be completed in the next fortnight. It will be sent to the SEC and its main conclusions will also be made public. Shell made it clear that the evidence emerging from the inquiry prompted the removal of Sir Philip after the board had lost confidence in him.

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