The Guardian: Another sign of unreliable times ...

Saturday January 10, 2004

The Guardian

Shell chairman must explain 

Sir Phil Watts had better be honing his amiably avuncular approach to shareholders in time for this year's annual meeting of Shell. Last year he managed to head off a full-scale revolt against his 55% pay rise in 2002 to £1.8m despite presiding over a 23% slump in profits and share price.

But the 23% vote against him last time could turn into a flood this year unless he comes up with a convincing explanation of why - after spending billions - Shell yesterday slashed estimates of its proven reserves by 20% (that's 4bn barrels of oil and gas out of 20bn) and admitted it had failed to replenish existing reserves for the third year in a row.

The Anglo-Dutch group says, pretty unconvincingly, that it initiated an internal review of those reserves because of a more stringent interpretation by the SEC of its reporting rules.

Harumph! That doesn't explain why it was necessary, let alone why the preliminary outcome suggests a wilful over-egging of proven reserves in the past.

Standard & Poor's reckons Shell's reserves, standing at 13.3 years at the end of 2002, are now barely 10 years.

So between now and February 5, when he reports full-year figures, Sir Phil will have to explain in full: why the over-statement (when he was in charge of exploration and production) took place; what the genuine reserves are; what growth rate, if any, he foresees; and how he plans to make good misplaced trust in his management of a company once rated for reliability yet reviled for its ultra-conservativism.

Shell was right to make yesterday's shocker of a statement but it needs to explain why it did so and the implications - including for Sir Phil's tenure.

http://www.guardian.co.uk/business/story/0,3604,1119934,00.html

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