The Daily Telegraph: Shell denies inflating figures to earn bonus
By Simon Goodley
08/03/2004
Embattled oil giant Shell came out fighting yesterday to dismiss suggestions that its executives in Nigeria were encouraged to inflate reported oil reserves by the prospect of bonuses.
The claims were made over the weekend, pouring fuel on the controversy engulfing the company over how it accounted for its reserves, which cost chairman Sir Philip Watts and head of exploration Walter van de Vijver their jobs last week.
In January Shell admitted it had overstated proven oil and gas reserves by 25pc, which sent Shell shares down by 10pc. Sir Philip was head of exploration and production between 1997 and 2001. A spokesman dismissed the Nigeria claims and said: "Group managing directors have a range of performance measures, and reserves account for about 2pc of that measure. Sir Philip has already said reserves are not a great lever for bonuses."
The Nigerian government offered tax breaks to companies searching for or declaring reserves between 1991 and 2000 under a scheme called the Reserve Addition Bonus Scheme.
"It was an incentive for foreign joint ventures based not only on volumes but also the activity used in finding those volumes," the spokesman said. "We have been in discussions with the Nigerian government and we were doing this well before the recategorisation."
No specific details about the discussions were provided, however, although Shell said that under Nigerian regulations oil companies must report other categories of reserves as well as those classified as proven. All reported reserves are eligible for bonuses under the Nigerian scheme, which Shell argues leaves it with no motive for upgrading unproven reserves.
The staunch defence comes as an independent inquiry run by lawyers Davis, Polk & Wardwell is under way. It is expected to conclude that the reserve error came as a result of a management breakdown or an act of bad faith.
"We have already said that it was a lack of confidence in the directors that led to them being asked to resign," Shell said. "The report is independent. We do not know what is in it."
However, a senior Shell source said: "Looking at what's been said, then it's either a management breakdown or an act of bad faith. We will have to wait and see what the report says."
The report is not expected to be completed for another few weeks.