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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2987)	4/19/2004 10:25:59 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

Shell Report Exposes Lies, CFO Sacked story.news.yahoo.com Mon Apr 19, 1:17 PM ET By Andrew Callus and Janet McBride LONDON (Reuters) - Royal Dutch/Shell executives knowingly hid an oil and gas reserves shortfall for years and feared the game was up as far back as 2002, an independent review revealed on Monday. The news came as the oil giant cut reserve estimates again and sacked a third senior executive, Chief Financial Officer Judy Boynton, for her part in the scandal, which shocked investors when it finally became public in January this year. Shell added 300 million barrels to total booked reserve cuts for 2002, to make a total reduction of 4.35 billion barrels of oil equivalent (boe) -- more than 22 percent of reserves originally booked for that year. It also cut a further 200 million boe from 2003 bookings for a total 2003 reserves cut of 500 million boe. The eagerly-awaited report, commissioned by non-executive directors in the aftermath of the reserves debacle and compiled by U.S. law firm Davis, Polk and Wardwell, unearthed memos in which one executive talked of his "lying" and about how the firm had "fooled" the market. It also showed that internal audits on booking reserves -- a crucial measure of value in the oil industry -- were undertaken by a single former Shell employee working part-time. Standard & Poor's cut its long-term credit rating on Shell one notch to "AA-plus" from "AAA" following the reserves report. Shell's report "highlights areas of durably weak corporate governance with significant digressions from Securities and Exchange Commission (news - web sites) rules," S&P said in a statement. Shell's crisis came to a head on January 9 this year, when it announced that it had overbooked proved reserves by 20 percent. The debacle has prompted investigations by investment regulators in the United States and Europe, including the U.S. Department of Justice (news - web sites), and shareholder lawsuits. MARKET "FOOLED" Monday's report summary quoted from a September 2002 note by former exploration and production chief Walter van de Vijver, since sacked for his conduct in the job, in which he talked about how investors could not be "fooled" for much longer. "The market can only be 'fooled' if 1) credibility of the company is high, 2) medium and long-term portfolio refreshment is real and/or 3) positive trends can be shown on key indicators," he said. "Unfortunately, we are struggling on all key criteria." Then in November 2003, he told the then Chairman of Managing Directors, Phil Watts, that he was "sick and tired about lying about the extent of our reserves issues." But a month later, Van de Vijver told staff to destroy a document outlining how 2.3 billion barrels of reserves were out of line with regulatory guidelines because it was "dynamite." The lawyers also criticized Watts, who was sacked along with Van de Vijver. Watts ran the core exploration and production division from 1997 to 2001 -- the period in which the mis-bookings were made. He was elevated from this post to the top job in 2001, leaving Van de Vijver to pick up the mess. The report said Watts then attempted to "manage" the problem rather than reveal it. "Simply put, it is illustrative of a strategy to play for time in the hope that intervening helpful developments would justify or mitigate the existing reserve exposures," the report said. "Ultimately... this strategy failed." Lawyers for Boynton, Watts and van de Vijver in Washington could not immediately be reached for comment on the report. Shareholders who watched billions wiped off the company's market value earlier in the year, have become used to a stream of bad news. However, on Monday, some appeared to see light at the end of the tunnel. "I think it's important that people don't get too bearish about the current situation," said David Cumming, Head of UK Equities at Standard Life Investments. CASH FLOW HOPES Shell shares fell 0.76 percent to 389-1/2 pence in London against a FTSE 100 which ended 0.2 percent higher. Royal Dutch shares ended off 0.13 percent at 41.59 euros. The shares have been rising in recent weeks on perceptions of strength in long-term oil prices and hopes for a share buyback inspired by such a plan from rival BP. "When you have these scandals, one of the things the market wants to see is a house cleaning," said Lyle Brinker, director of research at John S. Herold Inc, a Connecticut-based oil and gas industry consultancy. Shell itself was also at pains to show how small the impact would be on financial results, since so much of the reserves downgrade applies to as yet unexploited reserves. It put the overall impact on net earnings for 2000-2003 at just over $100 million per annum, or less than one percent of net earnings. Analysts have been saying for months that the issue of reserves bookings is a gray area. Shell's problems have spooked the whole industry, and some of its revisions have left its partners in a number of projects looking far more optimistic. The non-executive directors expressed "complete and unreserved confidence" in new Chairman Jeroen Van der Veer, and said there was no question of financial impropriety by Boynton. Unlike the disgraced Watts and van de Vijver, who have left the company, she remains a Shell employee. (Additional reporting by Mark Potter and Toby Reynolds in London, Kevin Drawbaugh in Washington and Dena Aubin in New York)