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The Times: Former Shell chief is pleased but he may sue his accusers

August 31, 2006

SEC drops investigation of Watts
By David Robertson
THE world’s leading financial regulators have concluded that nobody is to blame for Shell’s overstatement of its oil reserves, after the US Securities and Exchange Commission (SEC) dropped its investigation of Sir Philip Watts.

Sir Philip, the former executive chairman of Shell, is understood to be considering how to rebuild his reputation, including potential legal action against those who alleged wrongdoing on his part. 
The SEC, America’s market regulator, has decided not to take its investigation into Sir Philip any farther, a decision that the Financial Services Authority (FSA) in Britain reached last November. Dutch authorities have also decided to take no action, even though Shell has restated its oil reserves five times since 2004.

From 1998 to 2003, Shell had been claiming oil and gas reserves as “proven” — which carries a strict SEC definition — when it should not have done. Claiming reserves as proven means that a company is all but ready to pump the oil and the oil can be booked as a hard asset.

In January 2004 Shell was forced to restate an initial 3.9 billion barrels of oil, seriously damaging the company’s credibility. The FSA fined Shell £17 million for misleading investors and Shell has also agreed to pay $4 million to the State of California in settlement. The company also made a $120 million settlement with the SEC.

An earlier US Department of Justice investigation ended in June 2005 with no action being taken against Shell. However, even after financial regulators had disciplined the company, they remained intent on finding an individual responsible for the debacle. Both authorities have concluded that no case can be made against Sir Philip. He said yesterday: “I am extremely pleased that the US authorities have closed the investigation. As I have stated from the beginning, I have acted in good faith throughout and I had every reason to believe that all at Shell acted properly and in good faith when disclosing proved reserves.”

Sir Philip was dismissed by Shell in March 2004. He is believed not to have worked since, because he has been busy establishing his legal defence. Friends say that he may seek to initiate legal action against those who accused him of malfeasance. Lawyers representing Sir Philip in the US said yesterday that the SEC’s decision to drop its investigation vindicated their client.

Joseph Goldstein, a lawyer with Mayer, Brown, Rowe & Maw, said in Washington: “This has probably been the closest examination of any one person’s conduct that I have ever seen, and we are very pleased to see the case closed.

“Two of the world’s major regulators have carefully reviewed all the testimony and interviewed dozens of people and concluded there is no case. Sir Philip really deserves his reputation back.”

Sir Philip, who lives in Berkshire, is not clear of trouble. He and two other former executives are named as defendants in a class-action lawsuit that has been filed against Shell in the US.
Jan 2004: Shell cuts oil and gas proven reserves by 20 per cent. Restatements prompt investigations by UK and US authorities. Chairman Sir Philip Watts refuses to step down.

March 2004: Sir Philip dismissed and replaced by Jeroen van der Veer, head of Shell’s Dutch arm. SEC launches inquiry into Shell and Sir Philip’s role.

April 2004: Judy Boynton, chief financial officer, resigns. Shell admits to having known about problem since 2001. Downgrades reserves again. Unveils share buyback to calm investors.

May 2004: Cuts oil reserves again; says that it does not expect to do so again.

July 2004: Shell fined £17 million by FSA, largest penalty it had imposed. Shell also makes $120 million settlement to SEC.

May 2005: Annual report reveals the net present value of the 4.5 billion barrels cut in the first restatement was $6.65 billion when applied to the year 2002. However, the value of the second cut, when applied to the same year, was about $5.4 billion, even though only 1.15 billion barrels were removed.

July 2005: US decides not to take Shell to court for overstating its oil reserves.

August 2006: SEC drops its investigation into Sir Philip.


Shell and three former directors, including Sir Philip Watts, are being sued by investors in the US District Court for New Jersey. The investors allege that they were misled by Shell when it overstated its oil reserves between 1998 and 2003. The lead plaintiffs are Pennsylvania state retirement funds, and in January they were joined by Dutch, German and Luxembourg pension funds.,,9072-2335870.html and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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