Shell chairman issues an unreserved apology

By Christopher Hope, Business Correspondent

12:01AM GMT 06 Feb 2004

Sir Philip Watts yesterday issued “an unqualified apology” for not personally making Shell’s shock announcement that it was cutting its proven reserves by 20pc and admitted he had considered resigning over the matter.

The chairman of Shell’s committee of managing directors also revealed the company had exaggerated its proven reserves for at least 10 years and announced two inquiries into the way it accounts for them.

Sir Philip said he would be meeting Shell’s investors over the next four weeks to “hear at first hand” their concerns, which have included demands for changes to Shell’s complex corporate structure.

The surprise news on January 9 that Shell had overstated its proven oil and gas reserves by 3.9 billion barrels of oil equivalent (boe) sent the shares tumbling by 8pc.

Sir Philip and Judy Boyton, the finance director, were heavily criticised for not facing analysts and journalists on the day. Speaking at Shell’s 2003 results presentation yesterday, a chastened Sir Philip said the day was “seared into his memory”. He said: “It was a mistake not to be there. I regret that and I am sorry that I was not there. That is an unqualified apology. I got it wrong. That is the reality that I face.”

Shell had been been wrongly classifying some of its reserves since before 1994. About one third came from Nigeria, with the rest from Australia, the Middle East and Norway among others. Sir Philip ran Shell’s operations in Nigeria from 1991 to 1994. He was head of exploration and production from 1997 to 2001, when he became chairman.

He said the recategorisation as proven of 600m boe from Australia’s Gorgon gas field in 1997 was “an embarrassment”. The company never admitted the reserves were proven until last month.

Sir Philip said that he had considered resigning. He said: “I came to my own personal decision that I should not do that. This thing has happened on my watch. I am very determined to see it through this difficult patch.”

No Shell employee has quit over the affair. Sir Philip did not criticise any employees, saying: “Judgments made then would probably not be made today.”

Shell said that the impact on earnings would be $86m, with 85pc of the reserves likely to be reclassified as proven over the next 10 years. It should replace more than 100pc of its reserves for the next five years. Production will be flat for 2004 and 2005, and growing in 2006.

Sir Philip said Shell’s non-executives would be canvassing support among investors for change to its structure. The company has boards in Britain and the Netherlands, as well as a committee of managing directors. He said: “We need to think hard about the group’s structure.”

Shell posted fourth quarter pre-tax profits of $3.94 billion, down 7pc because of a $984m exceptional hit, on turnover ahead 13pc to $68.7 billion.

For the year to the end of December, pre-tax profits were up 35pc to $23.2 billion on turnover of $269.1 billion. Shell’s shares closed down 7 at 358.5p.

SOURCE