The Independent: Shell hopes to draw line under fiasco of reserves

By Katherine Griffiths, Banking Correspondent

20 April 2004

Shell yesterday bowed to pressure from investors to change the structure of the century-old company in an attempt to draw a line under internal mistakes at the oil and gas group that forced it to slash its reserves three times since January.

Jeroen Van der Veer, the new chairman of Shell's committee of managing directors, promised "behavioural and cultural change" at the company to ensure its reserving policy was in the future accurate and to create a clearer line of command at the top of the company. Mr Van der Veer said: "We want to foster a culture where bad news can be passed up the line without fear of reprisal."

Lord Oxburgh, Shell's chairman, added that the company had learned a "tough lesson" but would emerge "the stronger".

The company struck a contrite note as it announced a further recategorisation of reserves and confirmed the departure of Judy Boynton as its chief financial officer.

After a review of 90 per cent of Shell's reserves, the company said it was downgrading a further half a billion barrels of oil. That comes after Shell cut its reserves by 3.9 billion barrels - or 20 per cent - in January and made a further cut last month.

While yesterday's reduction was relatively minor, the company acknowledged that it "revealed disturbing deficiencies in our past reserves reporting practice and the manner in which Shell dealt with those issues". Its shares fell from 392.75p to 389.75p.

However, Malcolm Brinded, who has taken over the day-to-day running of Shell, attempted to assure the financial markets that there would be no major bad news. He said the company had carried out a "painstaking and thorough" review which would "draw a line" under Shell's difficulties.

As had been expected, the company sought to limit the blame for what went wrong at Shell to the "human failings" of a few individuals, according to Lord Oxburgh.

Publishing its keenly-awaited report into its failures, Shell's new board said the findings underlined the fact that its structure was sound. Yet the company has been told very clearly by the investor community that they want to see fundamental change at the Anglo-Dutch group.

As a result, Shell said, it would give more details of its plans for structural change at its annual shareholder meeting in May. In the meantime, it said changes could involve using more external experts to monitor its reserving policy and stepping up the frequency of its internal audits.

Shareholders welcomed Shell's willingness to make changes. Robert Talbut, the chief investment officer for ISIS asset management, said: "The case for change has overwhelmingly been made even from what we have seen today. The report shows that organisationally, culturally and structurally, this company needs quite a of change."

He added: "Investors cannot expect this to happen overnight, but I would expect when the company does say something at its annual meeting in May, the plans need to be reasonably well-baked."

Shell also said it would start to search for new managing directors to replace the three who have now had to step down following the reserving fiasco. As well as Ms Boynton, Sir Philip Watts, the former chairman, and Walter Van de Vijver, have had to resign.

Shell said Ms Boynton would stay on at Shell as a consultant until June. Some reports suggested she could be entitled to a pay-off worth £1m.

The company said it would search externally and internally for a new financial officer. In the interim, the job will be done by Tim Morrison, who has been the group controller since 2002. He joined Shell in 1982.  

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