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Original Source: FD (FAIR DISCLOSURE) WIRE
. Jeroen van der Veer, The Shell Transport and Trading Company, p.l.c, Chairman of the Committee of Managing Directors . Malcolm Brinded, The Shell Transport and Trading Company, p.l.c, Vice Chairman of the Committee of Managing Directors . Lord Oxburgh, The Shell Transport and Trading Company, p.l.c, Interim Non-Executive Chairman
. Aad Jacobs, Royal Dutch Petroleum Company, Chairman . Judith Boynton, The Shell Transport and Trading Company, p.l.c, Managing Director
RD announced that a further 250m boe of proved reserves will be recategorized at the end of FY02. In addition, RD have reduced the volume of proved reserves that they planned to book in FY03 by 220m boe. The expected impact on earnings is approx. $20m. Well write-off costs related to the original recategorization amount to $10m after tax. Q&A Focus: resignations, potential future reclassifications, reserves, legal cases, insider trading allegations, Ormen Lange, and ratings.
S1. Overview (J.V.) 1. Developments: 1. A lot of media attention in past few weeks over reserves. 2. New team determined to take company forward. 3. Have to deal with past problems.
S2. Reserves Update (M.B.) 1. Background: 1. Working across group to ensure full compliance with SEC rules and guidance. 1. Concerns arose about volume of proved reserves bookings for Ormen Lange Field in Norway. 1. Used 3-D seismic data, which is not recognized by SEC unless it's supported by conclusive evidence of reservoir
continuity. 2. Reduced proved reserves planned to be booked from 256m boe to 90m boe from Ormen Lange field. 1. No change in amount or timing of production expected from the field, nor in the expected cost. 3. Priority to get the information right.
1. Set in motion a fast-track review with help from external
consultants, Ryder Scott Co., together with internal and external auditors. 1. Review focused on compliance with SEC guidelines. 2. Covers over 40% of proved reserve base, including some 60% of proved undeveloped reserve base. 4. Results of Review: 1. A further 250m boe of proved reserves will be recategorized at end of FY02. 1. Reduced volume of proved reserves that planned to be booked in FY03 by 220m boe, includes the 170m boe from Ormen Lange field.
2. Latest recategorizations are primarily technical in nature.
3. Key issue is the criteria on which judge reasonable certainty.
4. Specific Issues Encountered in Latest Review: 1. Use of seismic data in establishing the area that is used to describe and define proved volumes. 2. Inclusion of reserves from improved recovery projects
without proven production experience. 5. Have to work on deepening the understanding of technical staff to ensure the strict adherence to regulatory standards. 6. Around 80% of recategorizations relate to reserve primarily located in north west Europe and Australasia. 1. No change in the amount, timing or costs of production expected from any field as a result of the review. 7. About 95% of volumes impacted by reductions had been booked as proved undeveloped reserves from non-producing fields. 1. Expected impact from reserves on earnings is approx. $20m. 2. Well write-off costs related to the original
recategorization identified; amount to $10m after tax. 8. Wider reserve base to be re-examined by teams, including external experts and auditors, and expect to complete review in next 6 weeks. 1. Results of review will confirm amount of reserves to be booked by end FY03. 2. Will also effect quantity of reserves to be included in the restated FY02 20-F supplementary information. 9. Vital to restore confidence in reserve accounting practices. 5. Actions Taken: 1. New operating model providing CEO clear line of sight and personal accountability for total EP organization worldwide.
2. Reinforcing role and strength of critical global functions: 1. Finance. 2. Key technical functions. 2. Remedial Measures:
1. Guidelines: 1. Reserve reporting guidelines being revised to remove any remaining ambiguity in terms of SEC rules and guidance. 1. Guidelines include clear auditable triggers for recognising new proved reserves bookings. 2. Guidance on technical and commercial issues. 2. Inside EP Business: 1. Increasing number of staff dedicated to reserves management. 2. External experts to be involved in contributing to business line review. 3. Moved reserves coordination to report through technical function. 4. Reserves bookings being removed from performance scorecards used to determine bonuses. 5. Proved reserves reporting specifically added to existing
assurance process. 6. Initiating major program of focus training for technical professional staff across the world. 7. Reserves approval requires extensive peer challenge at regional level and culminates in review and challenge process at global EP reserves committee. 3. Outside Business: 1. Group Audit Committee have overview process. 2. Committee of Managing Directors now signing off reserves annually. 3. Reserve auditors report to group internal audit outside business line. 4. Frequency of country reserves audits to be increased.
S3. Remedial Actions (J.V.) 1. Key Highlights: 1. Reserves reporting to be included in group assurance process. 2. Personal accountability:
1. Announced two changes in Directors on 3/3/04. 3. Consequences:
1. Have to count all reserves. 2. Must finalize correspondence with SEC. 3. Must ensure that external auditors are satisfied. 1. Estimated to be a six week exercise. 4. Have to delay publication of Annual Report to late May 2004. 1. Delay AGM by two months to 6/28/04 in London and The Hague. 1. Possibility to issue second interim dividend on the same date and same amount as scheduled for final dividend. 2. Governance and Structure: 1. Reserve issue not related to structure of Shell Group. 2. Listening phase for modifying structure to be until and including AGM. 1. To be followed by an additional month of thinking phase and proposal development. 1. Proposals by end of FY04. 2. To conclude proposals by AGM in FY05. 2. Codes of governance will drive changes anyway.
3. Groups working hard on standardization of processes. 3. Announced that Business CFOs to report directly to Group CFO. 1. Group internal auditor has to report to Group CFO. 3. Conclusion:
1. New team to restore the reputation which has been dented.
2. Group Audit Committee's own investigative report has not been
QUESTION AND ANSWER SUMMARY
Q1. (Brian O'Connor, Daily Mail) It seems very difficult to understand that if there were memos in the Group which were seen by several other people including yourself, why two people have departed and other people are still in their positions. The question is, why did Philip Watts and Walter van de Vijver have to go, when it appears that there were memos which you saw. and if the reports are correct other people saw, which alerted more than two people, why is it just those two people and not other people?
A. (Lord Oxburgh) Could I step in there? It's important to emphasize that present management are completely excluded from this process which is being carried out by the non-executive directors. They simply do not know what is happening, nor in anything that the Board has outlined the reasons for the decisions that were made.
A. (Jeroen van der Veer) If you read in the papers, be very careful there are two things all the time. The first of which at least in my view, I have tendency to get mixed up. First of all, Shell struggled for years to replace their reserves. That was known to me, to the Board and to the public, and of course as directors what do you do if you have struggled to replace your reserves? You think about investment, you think I should put more money to EMP. That is not a kind of specific, it is a problem for Shell, but I don't think that is the issue. Let me be very complete about that, because otherwise we will get this question ten times. Of course you then get the question who did know what? That is exactly the investigation, as Lord Oxburgh explained, by the Group Audit Committee. They have interviewed tons of people. They have reviewed tons of documents. We are not in the possession of that yet, we are not going to speculate on that and nor should we. This is all about April time and they work as hard as they can, that is their responsibility to do that.
Q2. (Brian O'Connor, Daily Mail) Can you tell us what you knew?
A. (Jeroen van der Veer) Yes, I can tell you what I knew, don't worry. Shall I do that? You have to see that in context. First of all, if you said what I knew, if I said that I knew that we were low in reserve and deplace, I think that is not the issue. That is not the point. The underlying question which you get all the time get via the newspapers is did you know about incorrect bookings in SEC returns? I assume that's what you mean? Well let me answer. The answer to that is no and let me explain why. Until the end of 2003, we have documents in the …