Financial Times: Ryder Scott in talks to settle suit
By Sheila McNulty in Houston
Mar 30, 2004
Ryder Scott, the oil and gas reservoir-evaluation consulting firm aiding Royal Dutch/Shell and El Paso in their review of reserves, is in talks to settle a lawsuit filed by Hicks Muse Tate & Furst, the Dallas-based investor.
The consultancy is accused of yielding to pressure from a previous client, Coho Energy, to raise its reservoir estimates. Hicks Muse Tate & Furst contends it relied on oil reserve estimates approved by Ryder Scott and Sproule Associates, a Canadian firm, in making its 1998 investment in Coho.
A year later, Coho declared bankruptcy.
Hicks Muse filed a lawsuit in 2002, alleging Houston-based Ryder Scott responded to pressure by Coho, and raised some of its reservoir estimates by up to 4.8 per cent.
"In its public filings, Coho made false and misleading statements as to the proved oil and gas reserves purportedly owned by Coho," said the complaint in Texas state court.
"Ryder Scott and Sproule intentionally, recklessly and/or negligently facilitated and participated in Coho's issuance of these misleading statements by grossly overstating the quantity of proved oil and gas reserves located in the Gulf Coast Properties and the Oklahoma Properties."
Ryder Scott and Sproule are attempting to settle the case. "There is no admission of any liability," says Jeff Elkin, a partner with Porter & Hedges, who is representing Ryder Scott. "Ryder Scott stands behind the work it did for Coho."
Ken Crowther, Sproule president, also stands by his firm's estimates.
Mr Elkin noted this type of lawsuit against a consultancy doing reserve estimates is "fairly rare". Industry insiders explain that is because companies such as Ryder Scott are known to be conservative, and therefore, credible.
The talks come as the Securities and Exchange Commission is extending its focus from the oil producers to the relationship they have with third-party consultants.
Despite the lawsuit, Ryder Scott remains one of the US' three biggest petroleum engineering firms and continues to gain new clients.
Mr Elkin said Ryder Scott changed its estimates on some Coho reservoirs because Coho made more current information available to its staff to analyse and study.
But Hicks Muse argues in the complaint: "Plaintiffs would not have made such purchases had they known that the volume and associated values of such reserves were overstated. As a result, plaintiffs have lost virtually all of their more than $15m investment in Coho stock."