Royal Dutch Shell Group .com

The Independent: Shell pays £83m fine to settle scandal over oil reserves: “Shell and a number of former and serving directors are also still under criminal investigation by the US Justice Department” (


By Michael Harrison, Business Editor

30 July 2004


Shell agreed to pay a record £83m in fines yesterday to draw a partial line under regulatory inquiries into its oil reserves scandal, but former and serving directors of the Anglo-Dutch company are still believed to be under investigation by UK and US authorities.


The embattled oil major has reached agreement in principle to pay a penalty of $120m (£66m) to the US Securities and Exchange Commission (SEC) for breaking American securities laws and one of £17m to the UK's Financial Services Authority (FSA) for breaches of market abuse rules.


The fine handed down by the FSA is the largest it has ever imposed, dwarfing the £4m penalty that Credit Suisse First Boston was ordered to pay in 2002 for misleading Japanese financial regulators.


The SEC refused to comment on its settlement with Shell. However, both regulators are understood to be continuing their inquiries into the role played by former Shell directors, including its ex-chairman Sir Philip Watts, in the misreporting of reserves. "This settlement relates only to our inquiries into the company," an FSA spokesman said.


Shell and a number of former and serving directors are also still under criminal investigation by the US Justice Department while stock exchange and financial markets regulators in the Netherlands are continuing separate inquiries, one of which concerns insider dealing. In addition, there are at least three separate sets of civil action being pursued by Shell shareholders, employee pension funds and other companies.


Jeroen van der Veer, the new Shell chairman, described the settlements with the SEC and FSA as "a hopeful step" in putting the reserves débâcle behind it. He declined to comment on the progress of the remaining investigations into the company and former directors.


The $120m penalty levied by the SEC is understood to be a combination of a fine and a contingency that could be used to help compensate shareholders.


The oil giant's shock announcement in January that it had overstated reserves by 3.9 billion barrels or 20 per cent knocked £9bn from the company's stock market value. It has since been forced to cut its reserve estimates a further three times, bringing the total to 4.5 billion barrels.


A damning report into the scandal for Shell, published in June, revealed that Walter van der Vijver, the former head of exploration and production, had written to Sir Philip complaining he was "sick and tired of lying" about the true state of reserves.


The FSA spokesman said its fine was based on a number of factors. "In this case, it was a major company, a lot of people lost money and there was culpability on the part of the company," he said.


Analysts suggested that Shell had got off lightly, pointing out the size of the company's profits in relation to the fines. Shell's net income rose 54 per cent in the second quarter to $4bn.


However, Tim Morrison, Shell's acting finance director, insisted the fines were significant. "These sums of money do make the eyes water. We do not regard them as trivia," he said.


Malcolm Brinded, who took over as head of exploration and production, said the payment of the fines was "an important milestone, which we are glad to have behind us".


Despite the rise in profits on the back of a surging oil price, Shell's exploration and production division turned in disappointing results, reporting a 3 per cent decline in earnings on lower production. Shell also cut its production forecasts for next year and 2006, saying output was likely to be in the range of 3.5 million to 3.8 million barrels a day. It was 3.9 million last year and 3.82 million for the first six months of this year.

Click here to return to Royal Dutch Shell Group .com