Shell Admits It Misled Investors
By Terry Macalister
20 April, 2004
The GuardianShell deliberately misled investors about the financial health of the world's third largest oil company, an internal inquiry revealed yesterday.
The Anglo-Dutch oil company sacked its chairman Sir Philip Watts and his exploration director Walter van de Vijver earlier this year after admitting it had overstated the amount of oil and gas reserves it had in the ground by more than 20%.Yesterday it said the figure was nearer 25% and admitted Sir Philip and Mr Van de Vijver had known about the problems for at least two years and possibly for as long as seven.
Extraordinary messages between senior directors, revealed yesterday, must increase the likelihood of them facing criminal charges from the US justice department which is investigating events.
The most damning statement comes in an email from Mr Van de Vijver to Sir Philip dated November 9 2003, which says: "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."
The firm, which controls over 1,000 petrol stations in Britain, also said finance chief Judy Boynton has been forced to leave her post.
Financial analysts use the reserves figure for valuing oil companies and yet the Shell figures were put together by one part-time staff member, it admitted yesterday in the findings of a report commissioned by Shell's audit committee.
The two top Shell executives had been insisting publicly as recently as early this year that difficulties with reserves only came to light late in 2003.
But as long ago as February 11 2002, Mr Van de Vijver forwarded a note to other senior executives warning the company's figures were 2.3bn barrels of oil higher than they should have been to meet the rules of the Wall Street regulator, the securities and exchange commission.
"Recently the SEC issued clarifications that makes it apparent that the group guidelines are no longer fully aligned with SEC rules," argued Mr Van de Vijver in the note published yesterday.
And yet on May 28 2002, Sir Philip appears to completely dismiss this warning when he tells Mr Van de Vijver to leave "no stone unturned" to ensure even higher oil and gas figures are reported publicly.
Lord Oxburgh, joint chairman of the Anglo-Dutch group, said the latest findings contained in a review by US lawyers Davis Polk & Wardwell had revealed "disturbing deficiencies" inside one of Britain's most prestigious companies.
He insisted he had been kept in the dark about the serious discrepancies between what was being said publicly rather than privately by the firm.
Lord Oxburgh promised a huge shake-up in the way Shell was run, saying new systems had already been put in place which he insisted "deals with our past mistakes and sets a new standard for the future".
Sir Philip's replacement, Jeroen van der Veer, rejected suggestions that the problems resembled the high profile scandals that had destroyed American companies such as Enron. "This is not a major financial scandal," he insisted.
But business experts said the crisis at Shell was the biggest since the Guinness affair in the 1980s and involved a company that was previously considered one of Britain's most conservative and reliable firms.