The Independent: Shell board studies crunch report on oil reserves fiasco

By Katherine Griffiths

17 April 2004

Members of the board of Shell were last night locked in a meeting at the headquarters of the company's Royal Dutch arm in The Hague, Holland, to discuss the report into why the oil and gas company was forced to slash its reserves and sack its chairman, Sir Philip Watts.

Aad Jacobs, the chairman of Shell's audit committee, which commissioned the report, confirmed on Thursday that members of Shell's overarching board would meet all day in Holland's financial centre to consider how to present the findings to the outside world.

The report, which was written by the US law firm Davis, Polk and Wardwell, will be published in the next few weeks. A separate report by the oil and gas experts Ryder Scott into exactly how large Shell's reserves now are will be published by the end of this month.

Various parties involved with the fiasco have hired their own lawyers and advisers to defend their record. Walter Van de Vijver, the former head of exploration and production at Shell, issued a statement earlier this week through a firm of Washington lawyers, saying he had warned senior colleagues as early as 2001 about problems with booking reserves.

Mr Van de Vijver and Sir Philip were forced to step down last month to take responsibility for the fact that Shell shook the financial markets in January when it said it had to cut its figure for proven reserves by 20 per cent. As the publication of the audit committee's report approaches, several of the company's shareholders have expressed concern that it gives too much emphasis to the failings of a few individuals, while ignoring the systemic problems at Shell that allowed the company to overstate its reserves by 3.9 billion barrels.

Ivor Pether, a fund manager at Royal London Asset Management, said: "If it is looking for scapegoats that would not be satisfactory. One would hope there would be something more constructive about the decentralised structure of Shell and how that could be improved."

He added: "The discrepancies in the regional reserves had been generated for some time and had been through Shell's process for validation. The report can't just be limited to pinning the blame on Sir Phil and Walter."

Separately, the New York Times reported that Shell's board was involved in an "active discussion" about whether other executives would have to leave. If that were to happen, it would be a significant change of course from when Shell's audit committee hired Davis Polk to investigate why Shell had got its estimates wrong. At the time, Mr Jacobs said in a statement that the audit committee had "recommended to [Shell's] boards and external auditors that they should feel confident in relying on representations of the group's current senior management."

It was also reported that Mr Van de Vijver sent an email to a colleague in December - a month before Shell sliced its reserves - saying that their analysis of the problems with reserving was "dynamite" which "needs to be destroyed" because it was incomplete.

There were also reports that another senior employee at Shell had complained about the analysis, which was carried out by Frank Coopman, the chief financial officer for the exploration and production unit.

It has been alleged that Mr Coopman did not consult fully with senior employees over why Shell had reserving problems, including in Nigeria and Oman. A spokesperson for Shell said: "Mr Jacobs confirmed there would be a meeting and that the internal report regarding the reserves would be on the agenda." He added that the internal review was not yet complete.

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