The Guardian: FSA to investigate Shell's reserve overstatement

Mark Milner

Saturday April 24, 2004

The Financial Services Authority last night launched a formal investigation into Shell's overstatement of its oil reserves.

The financial watchdog has been looking at the scandal-hit group for some weeks but last night it said it was "formally investigating various issues surounding recent announcements" made by Shell.

The company said: "We are continuing to cooperate with the FSA to assist them in completing their inquiries expeditiously."

The FSA gave no specific indication of the focus of its activities but it does have the powers to investigate companies under Britain's listing rules governing quoted companies and the code of market conduct where breaches are punished by fines and censure. It can also investigate "misleading statements and practices" - criminal offences that can lead to offenders being fined or jailed for up to seven years.

Earlier this week Shell acknowledged that an internal investigation had shown that investors had been misled about the company's position.

Shell had previously said it had overstated the extent of its oil and gas reserves - a figure used by analysts and investors to value the company - by 20%. The announcement led to the departure of chairman Sir Philip Watts and exploration director Walter van der Vijver. On Monday Shell said it believed the extent of the overstatement was around 25%.

In the US the justice department and the securities and exchange commission are investigating Shell's overstatement of its reserves. The FSA is understood to be in contact with the SEC, which has a different investigative remit, though last night the UK regulator would only say that it was "in close contact with the relevant overseas regulators throughout".

This week's internal report by US lawyers Davis Polk & Wardwell traced the problem of overstatement back at least two years and possibly as long ago as 1997.

It published emails between Mr van der Vijver and Sir Philip. They included one from Mr van der Vijver that said: "I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings."

Lord Oxburgh, joint chairman of the Shell group, has promised a radical shake-up and said new systems had been put in place to prevent similar mistakes occuring in future.

Shell has also promised to review its controversial Anglo-Dutch dual company corporate structure and is expected to report its conclusions to shareholders at the end of June.

The company has come under pressure to have its reserves figures audited by an outside company.

http://www.guardian.co.uk/oil/story/0,11319,1202321,00.html