Audit shows Shell reserves overstated by 41% as of ‘02

Royal Dutch/Shell Group, Europe’s second-largest oil company, reported its oil and gas reserves as of 2002 had been overstated by 41 percent, the culmination of five cuts that led to investor lawsuits, the loss of three senior executives and more than $150 million of fines.
Charlotte Observer

Royal Dutch/Shell Group, Europe’s second-largest oil company, reported its oil and gas reserves as of 2002 had been overstated by 41 percent, the culmination of five cuts that led to investor lawsuits, the loss of three senior executives and more than $150 million of fines.

Shell’s amended annual report, filed Monday, showed proven oil and gas reserves equivalent to 13.72 billion barrels at the end of 2002. Shell had first reported holdings of 19.35 billion for that year, 5.63 billion more than it should have. The figures mean that more than one of every four barrels, or 29 percent, at Shell was improperly recorded in the original document.

“This is the final chapter in rewriting Shell’s history,” said Andrew Bell, London-based European equity strategist at Carr Sheppards Crosthwaite.

Shell, based in London and The Hague, disappointed investors in January 2004 with its first restatement of reserves, leading to closer scrutiny of oil industry practices by internal auditors and regulators. Shell in October announced a plan to unite the English and Dutch parent companies that have owned the group for almost a century, saying it will lead to stronger management.

The U.S. Justice Department is conducting a criminal inquiry of the matter. Shell last year lost its AAA credit ratings because of the reserves restatements.

In Monday’s restated annual reports, Shell lowered net income for 1999 through 2003 in connection with the previously announced cuts to its reserves. Shell lowered net income for 2003 by $183 million, to $12.313 billion, and reduced net income for 2002 by $66 million to $9.656 billion.

In November 2003, Shell’s former head of exploration, Walter van de Vijver, wrote to Shell Chairman Phil Watts saying, “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.”

Shell replaced Watts and Van de Vijver in March of last year, and later beefed up internal auditing of its reserves.