Forbes.com: Shell management faces tough week; annual report due

Reuters, 14.03.04, 1:58 PM ET

LONDON (Reuters) - Troubled oil and gas giant Royal Dutch/Shell's hastily rearranged management faces a second week of investor anger and media attention as it prepares to publish its annual report on Friday.

The report may provide more clues as to how and why the Anglo-Dutch company overbooked proven oil and gas reserves by 20 percent in a four-year period leading up to 2001, and then failed to correct the overbookings until this year.

News of the over-optimistic bookings, revealed on Jan. 9, shook investor confidence in the 170-year-old company, and has already cost the jobs of two top executives, former Chairman Phil Watts and oil and gas chief Walter van de Vijver, the closest men to the overbookings.

A spokesman for the company confirmed that new Dutch Chairman Jeroen van der Veer was in London on Monday last week to give British staff a pep talk.

But his appointment as replacement to the fired Watts has done little to clear the air outside the company.

A formal probe by the U.S. Securities and Exchange Commission is in full swing, and Shell handed over preliminary findings of its own internal probe last week.

Company officials have said Shell is also holding "discussions" with a number of other regulatory authorities, including the UK Financial Services Authority (FSA), the Amsterdam Stock Exchange and the Euronext exchange about the overbookings.

"There's an awful lot of activity at the moment," one Shell employee said. "I've never known it like this. The top people are just working some ridiculous hours."

On Friday, debt rating agency Fitch Ratings revised its long-term outlook for Shell's top-level "AAA" rating to "negative" from "stable." Rating agencies Moody's and Standard & Poor's have already said they may cut their rating of Shell's debt -- a rating the company has long vowed to defend.

S&P said last month it would wait until after Shell produces details in its annual report, which is due out this week.

U.S. newspaper reports have published copies of memos apparently collected by the independent team conducting a review of Shell's reserves bookings.

The memos suggest that van der Veer and Finance Director Judy Boynton, as well as the two fired executives, were aware of a problem with reserves for well over a year before the problem was reported to the British arm Shell Transport & Trading's non-executive directors and the supervisory board of Royal Dutch.

But last week Aad Jacobs, chairman of the audit committee and chairman of the Royal Dutch supervisory board, backed the new management.

Britain's Independent on Sunday newspaper said disgraced Watts risked losing his pension and share options and may be sued by the company.