Daily Telegraph: Memos expose Shell's years of lying: "Former executives at Royal Dutch Shell lied about the true level of the company's oil and gas reserves for years, a damning internal report found yesterday. The report, by US law firm Davis Polk and Wardwell, detailed a deeply damaging series of e-mails and memos between sacked head of exploration Walter van de Vijver and former chief executive Sir Philip Watts. In one Mr Van de Vijver said he was "sick and tired of lying" about the company's oil and gas reserves."

By James Moore (Filed: 20/04/2004)

Former executives at Royal Dutch Shell lied about the true level of the company's oil and gas reserves for years, a damning internal report found yesterday.

The report, by US law firm Davis Polk and Wardwell, detailed a deeply damaging series of e-mails and memos between sacked head of exploration Walter van de Vijver and former chief executive Sir Philip Watts.

In one Mr Van de Vijver said he was "sick and tired of lying" about the company's oil and gas reserves.

The report found Shell's committee of managing directors were made aware of problems with the reserves in 2002 but were not told the full extent of the difficulties. They were told that the company hoped to "manage" the problem by "playing for time".

The reserves were audited by a part-time former employee who went along with Shell's attempt to conceal its difficulties because he feared for his job.

Yesterday Shell cut its 2002 proven reserves by a further 300m barrels bringing the total cut to 4.35 billion - more than 22pc. The 2003 reserves were also cut by a further 200m barrels.

Shell also confirmed the ousting of Judy Boynton as finance director, who will act as a consultant for an undisclosed time.

Standard & Poor's, the credit rating agency, compounded Shell's misery by downgrading its credit from AAA to AA plus.

The correspondence between Mr Watts and Mr Van de Vijver began in June 2001 when Mr Van de Vijver took over as head of exploration and production. He was promoted after Sir Philip was made chief executive partly because of his success with reserves. The two engaged in a "pointed dialogue", with Mr van de Vijver complaining Shell had overbooked reserves throughout the 1990s.

Sir Philip e-mailed Mr Van de Vijver on May 28 2002, before a presentation to the board, telling him to "leave no stone unturned" to make sure the company could report that it was able to replace oil reserves as quickly as oil was being sold.

On September 2, Mr Van de Vijver submitted a note to the committee of managing directors and Ms Boynton discussing how the difficulties could be concealed.

It said: "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... We are struggling on all key criteria."

Sir Philip subsequently wrote to Mr Van de Vijver defending the business targets of achieving an oil replacement rate of 100pc.

But on October 22, Mr Van de Vijver replied: "I must admit that I become sick and tired about arguing about the hard facts and also cannot perform miracles given where we are today."

On November 15 he told staff that "we . . . could easily leave the impression that everything is fine. The reality is however that we would not have submitted this plan if we 1. were not trying to protect the group reputation externally and 2. could have been honest about past failures."

Further damaging disclosures were made throughout 2003, culminating in an e-mail to Sir Philip from Mr Van de Vijver on November 9 in which he said he was "sick and tired about lying about the extent of our reserves".

On December 3, Mr Van de Vijver's staff warned him the company was under a legal requirement to disclose its true reserving position. He immediately e-mailed one of the authors to say: "This is dynamite, not at all what I expected and needs to be destroyed." The report said only prompt intervention by internal counsel prevented this.

However, John Dowd, Mr Van de Vijver's lawyer, said in a statement yesterday that the e-mail was taken out of context and "nothing was concealed or destroyed".

The report also criticised Sir Philip for his comments in January 2004 when he revealed the overstatement. He said he believed Shell had always been "materially compliant" with SEC reporting guidelines and there was "no evidence of misconduct".

Lord Oxburgh, joint chairman, said the full report could not be released because of "requests from the authorities". Shell is being investigated by the US Justice Department and the SEC, the Wall Street watchdog, among other regulators. It faces several lawsuits.
 

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