Royal Dutch/Shell 'Oil Reserves' Controversy
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Case Details:
Case Code : BECG040
Case Length : 14 Pages
Period : 2001-2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Royal Dutch/Shell
Industry : Oil and Energy
Countries : Netherlands/UK
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BECG040) click on the button below, and select the case from the list of available cases:
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
The Revelation
After its announcement of its reclassification of its reserves in January 2004, Shell undertook an extensive review of its global oil reserves portfolio with the assistance of external 'oil reserves' consultant Ryder Scott Company.
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During the review, 300 fields covering approximately 90% of Shell's global oil reserves base were looked at. These included all the company's fields with oil reserves above 10 mn barrels, and also such fields in associated companies.
Following the review, Shell announced that subject to further consultation with the SEC, it would reinstate a total of approximately 4.35 bn barrels of oil equivalent (boe) as per the end of 2002. This represented the earlier recategorized volumes in the previous year (as at end-2002). Additionally, the company proposed to reduce the amount which it had originally planned to book in 2003, including some negative revisions, by around 0.5 bn boe...
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The Controversy
While the downward revision of proven oil reserves by Shell had shaken investor confidence, the internal report released by the company to the press on April 19, 2004, worried them even more.
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The report stated that the top managers at Shell knew about the inflated reserves for years and had been arguing about whether and how to lie about it to investors. The report quoted a statement allegedly made in an e-mail by Walter Van de Vijver (Vijver), the then CEO of Shell EP unit to the company's executive chairman, Sir Philip Watts (Watts) stating, "I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings." The internal report stated how and when the inflation of reserves began in Shell. In July 2001, Watts who was the CEO of Shell EP Unit got promoted to the post of Executive Chairman of Shell... |
Excerpts Contd... >>
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