[A-List] Mark Jones was right: Shell's 4th downgrade

["Michael Keaney" <michael.keaney@xxxxxx>]

Shell forced to make fourth downgrade

Oil stocks reduced again - as are 2003 profit figures

Terry Macalister
Tuesday May 25, 2004
The Guardian

The reserves scandal that has been dogging Shell all year was back on centre
stage yesterday as the company downgraded its figures for the fourth time.

The Anglo-Dutch group, which has already ousted three of its most senior
directors, also cut the 2003 annual profit figures it published three months
ago.

The 2001 profit figures have been reduced, too, in the set of accounts now
finally signed off by the auditors. This means the delayed annual report can
be published on Friday. Talks with American regulators on all these figures
have still not been finalised, Shell admitted. Malcolm Brinded, the group's
new exploration director, said he was confident he would not have to come
back to the market with another reserves downgrade, although he qualified
this by saying he had learned "never to say never".

A further 103m barrels of oil equivalents have been sliced from the proved
reserves as stated on December 31 2003, due to changes in the way Canadian
assets have been booked.

This brings the total of reserves restated since the start of 2004 to 4.47bn
barrels, and means the group's replacement ratio last year was 63 per cent.

Shell reported on February 5 that its 2003 net income was $12.7bn (£7.5bn),
but yesterday it said this figure had been reduced to $12.5bn. Similarly,
the 2001 figure was originally $10.85bn but this has been cut to $10.35bn,
while the 2002 figure was increased from $9.4bn to $9.7bn. There was also a
small financial downgrade attached to two "properties" believed to be in the
North Sea, and overall production for 2003 was cut by 9m barrels of oil
equivalents.

Chairman of the managing directors Jeroen van der Veer said publication of
the annual report was an "important milestone" but he could give no date for
when Shell might complete talks with the US securities and exchange
commission. It needs to do this to file its 20-F, the equivalent of an
annual report for the Wall Street watchdog.

Nor was Shell able to give any updates on investigations by the SEC into its
previous filings. But it said it was cooperating fully and was anxious to
put these setbacks behind it.

"This does nothing to boost confidence in the company," said a top analyst,
who asked not to be named. "In many ways it raises more questions than it
answers, because it highlights Shell has a different North American policy
[on reporting reserves] than for the rest of the world."

The company's shares remained firm at 393p, having dropped from 540p since
last summer. City analysts said the revelations were of no great consequence
in financial terms but might further worry nervous investors. Fred Lucas, an
analyst at Cazenove, believed the different announcements were a "minor
positive" because a line had been drawn under the proven reserves
recategorisation issue. "The associated impact on earnings [$256m] is as
expected and small," he added.
So far the oil group has not set aside any special provisions to pay for the
various legal claims being issued against it by angry shareholders but it is
booking legal costs as they arise.

Friday's annual report will not contain details of any payments made to
former chairman Sir Philip Watts and exploration director Walter van de
Vijver, who left the firm, or to finance director Judy Boynton, who has been
moved. The remuneration committee was still looking at this issue, the
company said, implying that a severance pay-off has not been ruled out. With
Shell not having completed its talks with the SEC, the City is crossing its
fingers that there is nothing important to reveal.

The company has been trying to win back investor support recently by
starting a share buyback initiative similar to that implemented some time
ago by arch-rival BP.

Shell shocked investors in January when it first cut its proven oil and gas
reserves by 20% - mainly in Nigeria and on Australia's Gorgon field. Since
then it has gradually downgraded them further, with figures for the Ormen
Lange field in Norway being changed to realign them with SEC requirements.

An internal report on the scandal published on April 21 concluded that Sir
Philip and Mr van de Vijver had knowingly concealed problems from
shareholders and regulators.

The report provided details of an email from Mr van d Vijver to Sir Philip
written last November, in which he said: "I am becoming sick and tired about
lying about the extent of our reserves issues and the downward revisions
that need to be be done because of far too aggressive [or] optimistic
bookings."

As long ago as September 2002, Mr van de Vijver wrote a "strictly
confidential" personal note that was intended for the file. It reviewed
Shell's decision to reduce production growth targets which disappointed the
stock market in September 2001.

"The bottom line was that both reserves replacement and production growth
were inflated: aggressive [and/or] premature reserves bookings provided the
impression of higher growth rate than realistically possible," he concluded.