Royal Dutch/Shell Exposed: Top Executives Knew of Overstated Reserves for Almost Two Years

Top executives of Royal Dutch/Shell were aware of the company's overstated oil and gas reserves for nearly two years before the issue was made public. The Anglo-Dutch oil giant disclosed yesterday that two of its most powerful board members, Sir Philip Watts and Walter van de Vijver, were feuding about the reserves issue. The two executives were forced out of their positions last month after losing the confidence of the board. The company's troubles worsened as it cut its proved reserves figure for the third time this year, and said restatements would cut its 2000-03 earnings by an average of $100m (Pounds 55m) a year.

Key Takeaways:

• Royal Dutch/Shell's top executives were aware of the company's overstated oil and gas reserves for nearly two years before the issue was made public.
• Sir Philip Watts and Walter van de Vijver, two of the company's most powerful board members, were feuding about the reserves issue.
• The two executives were forced out of their positions last month after losing the confidence of the board.
• The company's troubles worsened as it cut its proved reserves figure for the third time this year, and said restatements would cut its 2000-03 earnings by an average of $100m (Pounds 55m) a year.
• Shell introduced a new regime for reserves accounting and compliance, monitored by external consultants, after a probe by Davis Polk & Wardell, the US law firm, revealed disturbing deficiencies in the company's past reserves reporting practices.
• Judy Boynton, the company's chief financial officer, stepped down after being criticised in an audit report for being "not effective" in her compliance function.
• Tim Morrison, group controller since 2002, becomes acting CFO.
• Shell's credit rating was cut a notch to AA+ by Standard & Poor's.

Statistics:

• Royal Dutch/Shell's proved reserves were 15bn barrels at the end of 2002 - 4.35bn barrels below the original reported figure.
• The company's proved reserves were 14.5bn barrels at the end of 2003.
• Any further cuts in reserves would not exceed 150m barrels.
• The company audited 90 per cent of its fields.

Sources:

• "Royal Dutch Shell Retires Two Executives Amid Crisis of Credibility" by CLAY HARRIS and ADRIAN MICHAELS LONDON and NEW YORK, Financial Times ( Exact Date of Publication Not Available), 2004
• "Human failings, not structural deficiencies" by Lord Oxburgh, Financial Times ( Exact Date of Publication Not Available), 2004
• www.ft.com/shell