Shell auditors warned of reserves problems in Jan 2002: report

London (Platts)--15Jul2004

Shell's external auditors were warned of possible problems with the company's
oil and gas reserves bookings as long ago as January 2002, two years before
the company disclosed overstatements in its proved reserves, the Wall Street
Journal reported Wednesday. 

In January 2002 and January 2003, Shell's internal auditor Anton Barendregt
circulated an annual review of the previous year's reserves booking to senior
Shell management, KPMG and PricewaterhouseCoopers, the external auditors of
the Shell group's Dutch and UK parent companies. In those reviews, Barendregt
warned that Shell's reserves bookings may not comply with guidelines set by
the US Securities and Exchange Commission, the newspaper said. At the same
time, he said Shell's bonus system could have encouraged reserves bookings to
be exaggerated. Although his first warning came two years ahead of any public
disclosure of the reserves problem, Barendregt underestimated the scale of the
problem, according to the report.

Barendregt suggested some 1% of Shell's reserves for 2002 were at risk of
being overstated, but earlier this year the company slashed its proved
reserves for 2002 by 23%. The successive downgrades to its proved oil and gas
reserves caused Shell to dismiss its chairman Phil Watts, senior upstream
executive Walter van de Vijver and chief financial officer Judy Boynton
earlier this year. The company has since set up a high-level steering group to
review its complicated corporate structure and see if its decision-making and
accountability could be improved. The panel is due to present its findings in
November, with shareholders to vote on any proposals at their annual meetings
in 2005. The reserves downgrades are being investigated by the SEC, European
regulators and US Department of Justice and have already prompted a number of
class action lawsuits in the US.

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