The boards of Royal Dutch/Shell Group’s parent companies met Friday to consider if any further actions should be taken following the 20% reserves reduction taken in January. A report by the company’s audit committee apparently puts the blame for the oil and gas reserves revisions on former Chairman Sir Philip Watts and Walter van de Vijver, the former exploration and production (E&P) chief.

Watts and van de Vijver resigned in early March following the reclassification of 20% of Shell’s proved reserves in January (see NGI, March 8). However, van de Vijver issued a lengthy statement last week indicating he had uncovered the company’s reserves discrepancies after he took over the business unit and said he had repeatedly warned top management of the problems before they were publicly disclosed in January.

The internal audit report is said to be more than 200 pages, and “details how Shell officials made changes starting in the early 1990s that may have resulted in Shell managers and engineers feeling emboldened to inflate reserves without fear of consequence,” the Wall Street Journal reported.

People familiar with the report said “Shell’s management determined that the oil giant was too conservative in claiming reserves compared with its peers,” and said “engineers and other managers appeared to have abused the relaxed internal rules to further their careers, and an effective internal auditing system wasn’t in place to curb the abuses.”

The report does not assign any blame to other “lower level” Shell managers, but “it does mention some other individuals by name,” the Journal reported. The company already has undertaken a reorganization of some of its personnel, along with additional training on reserves accounting.

In a statement issued last week, van de Vijver said, “Much has been written in the press in the past few weeks regarding my role as the former CEO….Many of the statements…including many attributed to the company and individuals ‘close to’ the internal investigations are misleading to the extent that they portray my role inaccurately or incompletely. While, out of respect for the company and because of the ongoing regulatory investigations and other legal proceedings, I have decided not to make a detailed statement at this time, key aspects of my efforts at E&P should be clarified for the record.”

Van de Vijver said that from the beginning of his tenure over E&P, he worked to diagnose and improve the “health” of the business. He was appointed COO of affiliate Shell Exploration & Production Co. in 1998 (see Daily GPI, Sept. 10, 1998). Shell’s “procedures were in need of improvement,” he said, and noted that “some prior bookings needed to be re-evaluated for compliance purposes.” Once he discovered the discrepancies, van de Vijver “communicated” the findings to the Committee of Managing Directors (CMD), which oversees Shell’s worldwide operations, “without delay.” In his statement, he did not disclose a date when he first reported the findings.

Van de Vijver said he did all he could to “offset non-compliance reserves by increasing forward reserves replacement and implementing other measures,” and said he “regularly communicated to CMD regarding the nature and quantity of the potentially non-compliant reserves and our efforts to assess the magnitude of the problem, prevent reoccurrence and implement offsetting measures.” He also said he recommended appropriate public disclosure.

“As the magnitude of the non-compliant reserves classifications became apparent in late 2003, I led the charge to communicate the issues fully within the company,” he said. “I persisted in calling for full and prompt disclosure to the company’s joint board of directors and to the public.” And since the public announcements, van de Vijver said he has offered his full cooperation and support to the ongoing Securities and Exchange Commission investigation as well as internal investigations.

Without “credible explanation,” van de Vijver noted that on March 3, after more than 24 years with Shell, he was asked to resign. “For my part, I look forward to a constructive resolution of these issues and then moving on with my career elsewhere.”

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