Financial Times: Shell drops claim it 'acted in good faith'
By Carola Hoyos
Published: March 4 2004 21:58 | Last Updated: March 4 2004 21:58
Royal Dutch/Shell, the Anglo-Dutch energy group, on Thursday abandoned its assertion that its management acted "in good faith" when it wrongly booked almost 4bn barrels of oil and gas reserves with the US Securities and Exchange Commission.
Sir Philip Watts, the company's chairman, was forced to resign on Wednesday amid an SEC investigation and pressure from investors.
The resignation came as a surprise. Sir Philip had only recently told analysts and investors that he had the full backing of the board to remain chairman and help sort out the debacle over the misbooked reserves, which came to light on January 9.
A Shell spokesman said he could no longer make the assertion that management had acted in good faith, which has been an oft-repeated staple in Shell's communications in the past two months.
Sir Philip stated in a letter to Shell staff on January 16, which was later made public: "I believe that individuals concerned worked in good faith to the interpretations in use when the bookings were made, following proper processes, and that there is no evidence of any misconduct."
The spokesman said he could now only say that "judgments were made in the past that would not be made today" - another statement that Shell has made before. But he added that the group's twin boards had found no illegal conduct.
The company said its boards decided to seek changes in management after hearing the findings of a group audit committee review of the circumstances surrounding the January recategorisation of the group's reserves.
That review is expected to be passed to the SEC when it is completed.
The SEC’s investigation, which makes the issue of whether managers acted in good faith especially sensitive, is said to have been of particular concern to the board members of Royal Dutch, which controls 60 per cent of the group.
The audit committee has also hired law firm Davis, Polk and Wardwell and set up its working group to review the issues surrounding Shell’s announcement, which shocked investors.
Questions have been raised over whether Sir Philip had been warned before January 9 that some of the fields he had agreed to define as proved reserves did not qualify as such under SEC rules.
Asked by the Financial Times last month whether this was the case, he said: “The judgment was made annually that we were, in aggregate, for the totality of the group, materially consistent with the SEC rules and guidelines and people used that judgment at the time and signed off.”
Since then Sir Philip has been unavailable for comment. Sir Philip was Shell’s head of exploration and production and oversaw the booking of reserves for almost all of the period - 1996 to 2002 - during which the erroneous bookings were made.
One of Shell’s biggest mistakes during that time was that it booked the giant Gorgon gas field in Australia as proved, even though it was far from being developed. Shell’s partners in the field did not make the same mistake. ExxonMobil and ChevronTexaco, the two US partners, have yet to book the field.