Reuters: Shell Braces for Legal Onslaught
By Andrew Callus
Fri Mar 5, 2004 04:41 AM ET
LONDON (Reuters) - Royal Dutch/Shell, which sacked its boss this week for overbooking oil and gas reserves, was preparing on Friday for a full-scale legal onslaught on the subject from regulators and angry shareholders.
On Thursday the Anglo-Dutch oil giant said lawyers from U.S.-based firm Davis, Polk and Wardwell were leading a team conducting an internal review of reserves. The firm acted as its lawyer when it bought North Sea firm Enterprise Oil in 2002.
A spokesman said on Friday that despite the sackings of Chairman Phil Watts and oil and gas chief Walter van de Vijver over "facts and circumstances" thrown up by the review, "no finding of illegal conduct has been made by the boards."
The spokesman was nevertheless unable to repeat the assertion that company officials acted "in good faith," a statement made in the January 9 downgrade when Shell reclassified 3.9 billion barrels of oil equivalent -- 20 percent of its proved reserves -- into categories with less certainty of commercial viability.
"Judgments were made in the past that would not be made today," the spokesman said, repeating a comment made by Watts himself with fourth-quarter results in February.
This week's legal developments indicate that Shell takes seriously the possibility of a full-blown legal battle over the reserves downgrade.
Shell's lawyer-led review of reserves is expected to conclude in the next few weeks, and the results will be shared with U.S. regulator the Securities and Exchange Commission (SEC) and other authorities.
Its group audit committee of non-executive directors launched an immediate review of bookings and the reasons behind the 3.9 billion barrel cut in reserves.
Some analysts fear that Wednesday's sackings suggested the review had turned up more bad news for the company that could outweigh any positive sentiment over a "fresh start."
The company's shares, which had already partly recovered the slide that followed January 9, rallied briefly on Wednesday as investors who had called for Watts to go cheered their victory. But the climb was limited and short-lived, and by early Friday the twins stocks had given up Wednesday's climb.
Some U.S. law firms have already launched class-action suits on behalf of unhappy shareholders, and the SEC has launched its own formal investigation, potentially a step toward legal action.
The management clearout has put veteran chemicals chief Jeroen van der Veer into the top job and respected gas and power chief Malcolm Brinded in the number-two slot. Watts said just a month ago that he would not quit, despite investor pressure for management changes, and the group's twin boards backed him.
But on Wednesday he was fired along with Van de Vijver.
Watts ran the oil and gas arm for four years up to 2001 -- the period in which most of the overbookings were made. Van de Vijver took over the core division when Watts was promoted to Chairman of the Committee of Managing Directors -- Shell's top executive post.
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