The Wall Street Journal: Shell Draws Focus Of U.K. Watchdog
Regulator's Contact Follows
Similar Moves by Others,
Including Euronext Bourse
By CHIP CUMMINS
Staff Reporter of THE WALL STREET JOURNAL
March 15, 2004 4:03 a.m.; Page A6
LONDON -- Regulatory scrutiny intensified over Royal Dutch/Shell Group's restatement of its energy reserves, with the company saying during the weekend that it has been in contact about the matter with the Financial Services Authority, Britain's top financial watchdog.
A Shell spokesman declined to comment on whether the contact could be characterized as an investigation. "We have been in contact with the FSA in line with our continuing obligations," the spokesman said, adding that Shell "will continue to work with them."
An FSA spokeswoman declined to comment on whether Shell was under investigation. The agency, which has jurisdiction over companies listed in Britain, can levy fines if it determines a company didn't adequately disclose information material to an investor's decision to buy or sell shares of the company.
Other regulators, including the top Dutch financial watchdog and Euronext, the cross-border European stock exchange, have weighed in. Both have stopped short of characterizing their procedures as investigations. European scrutiny comes in the wake of an investigation by the Securities and Exchange Commission into the reasons behind Shell's disclosure on Jan. 9 that it would slash its oil and natural-gas reserves by 20%. Reserves -- the tally of oil and gas a company expects to extract from the ground -- serve as an important indicator of a company's recent performance and future value.
The two boards of Shell's parent companies -- Royal Dutch Petroleum Co. of The Hague and London-based Shell Transport & Trading Co. -- ousted Chairman Philip Watts and a top deputy, Walter van de Vijver, this month.
Last week, The Wall Street Journal and the New York Times reported senior executives at Shell were warned of potential reserve shortfalls as many as two years before the public disclosure. Shell has declined to comment on when former or current executives knew about the reserve issues, and the company has so far declined requests to interview current executives. Attempts to reach Sir Philip and Mr. van de Vijver for comment have been unsuccessful.
Fitch Ratings, meanwhile, revised to negative from stable its outlook on Shell's triple-A senior unsecured debt rating. In a release Friday, the agency said the rating-outlook change reflects expected additional costs at Shell of as much as $6 billion to replace reserves affected by the cuts, through either drilling new wells or buying reserves.
The outlook change also reflects "the possibility of further managerial instability and movement, financial penalties, findings supporting shareholder litigation and further reserve adjustments," Fitch said.