London Evening Standard: Shell slashes its reserves again

Steve Hawkes,

18 March 2004

SHELL suffered a humiliating new blow today as it was forced to wipe several million more barrels from its proven oil and gas reserves and delay its annual meeting until the summer.

More than £1bn was slashed from the group's stock market value after new chairman Jeroen van der Veer conceded: 'Our reputation has been dented.'

Just two months after Shell stunned the City by admitting it had overstated the oil and gas reserves on its books by 3.9bn barrels - some 20% - it today upped the figure to 4.15bn.

The group added that a further 220m barrels it expected to file for the huge Ormen Lange field in Norway this year would now also be re-categorised.

It said: 'Shell has determined that a portion of the volume proposed to be booked at 31 December as proven reserves at Ormen Lange did not strictly follow SEC guidance.'

Van der Veer has been trying to draw a line under January's shock reserves downgrade ever since taking over from shamed chairman Sir Philip Watts a fortnight ago.

But the group has been dogged by constant speculation as the US Securities and Exchange Commission and the Financial Services Authority probe the timing of the January statement.

Van der Veer today insisted that he knew nothing about the overbooking issue until it came to light at the end of last year. His aim was now to take the company forward.

'We have to deal with this issue and deal with it as quickly as possible and as openly as possible,' he said.

Shell revealed that it had brought in consultants Ryder Scott to review its oil and gas portfolio and that this had led to today's cuts. Others may take place as the review is completed over the next six weeks.

Van der Veer said this and an internal investigation by the group's independent audit committee into the overbooking debacle meant Shell's annual report, due tomorrow, would be published in May.

Its long-awaited annual general meeting has been put back two months until 28 June although Van der Veer confirmed no executives would receive a bonus for 2003.

Shell's shares dropped 11p to 361p as analysts said today's dramatic downgrade would further stretch already strained relations with the City's investment community.

Richard Rose of Oriel Securities said: 'The review of reserves is ongoing and this is going to create continuing uncertainty. This is just problems on top of problems. When is it going to end?'

Van der Veer said Shell still intended to review whether to abandon its 100-year duallisted structure but insisted a decision would not be taken until April next year.

Oil-find bonuses go as image clean-up begins

SHELL executives will no longer be paid bonuses for finding oil and gas reserves as the company desperately tries to restore its reputation and tighten up the way it books discoveries.

Buried in today's dramatic warning, the Anglo-Dutch group added that from now on its committee of managing directors - its executive board - would sign off reserves on an annual basis. The group is also revising its guidelines to 'remove any remaining ambiguity' when managers apply rules laid down by the US Securities and Exchange Commission and will carry out audits of key regions each year.

Analysts said the changes were a sign Shell was listening to investors, who are furious over the way the crisis engulfing the supermajor has been handled since it erupted at the start of the year. Bruce Evers at Investec said it was part of the 'fine-tuning' Shell needed to make to mend bridges with financial institutions but warned the group's reputation was severely damaged.

'They have lost all credibility and it takes a long time to restore credibility in the stock market,' he said. 'But then again they need time. A quick fix often comes apart quite quickly.'

Shell said today that up to 15% of the bonus paid out to senior members of its exploration teams each year has traditionally been dependent on their success in booking reserves. Critics have argued that such incentives encouraged officials to exaggerate the size of the group's reserves, a claim that has been consistently denied by Shell.

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