London Evening Standard: Shell alarm two years before scandal: “SHELL'S external auditors were warned the oil giant was inflating its energy reserves two years before the company finally came clean”

Robert Lea,

15 July 2004

SHELL'S external auditors were warned the oil giant was inflating its energy reserves two years before the company finally came clean, it has emerged.

The revelation, in internal Shell documents that also suggest the over-reporting of oil and gas finds could be linked to the group's executive bonus scheme, puts the spotlight back on KPMG and PricewaterhouseCoopers. The group's auditors were recently named in potential legal actions by US shareholders.

It has emerged that Shell's chief internal reserves auditor, Anton Barendregt, circulated documents seen by the auditors in January 2002 and again 12 months later saying there was a danger the group's stated reserves could be inflated.

In January of this year, Shell admitted its 2002 reserves had been overstated by almost 30%, prompting a collapse in the share price and subsequent departures of three of the company's most senior executives including chairman Sir Phil Watts.

Shell has previously stated the ambit of KPMG and PwC's work does not extend to auditing reserves. However, if wrongly stated reserves effect the financial figures of the company then the auditors, it is argued, have a duty to reconcile any inconsistencies.

The reports from Barendregt also called into question the integrity of Shell's bonus systems under which the booking of reserves had to hit certain targets to trigger additional payments to executives. The scheme has since been scrapped.

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