Royal Dutch/Shell Group Announcements LONDON and THE HAGUE, The
Netherlands, March 18 /PRNewswire-FirstCall/ -- Royal Dutch
Petroleum Company & The "Shell" Transport and Trading Company,
p.l.c. The Royal Dutch / Shell Group of companies ('Shell') today
made a series of announcements relating to the recent
recategorisation of proved hydrocarbon reserves. A press and
investor conference hosted by Jeroen van der Veer, Chairman of the
Committee of Managing Directors ('CMD'), will be held today at 2.00
pm GMT. The conference will be audio broadcast on the Shell website
and can be accessed via http://www.shell.com/investor. Shell is
currently engaged in correspondence with several regulatory
authorities, including cooperating with a formal non-public
investigation by the US Securities and Exchange Commission ('SEC').
Shell is also subject to related ongoing legal actions in the
United States. As a result Shell's management must balance its
public statements on this subject against the risk of prejudice in
any subsequent legal action. The detailed facts and circumstances
leading up to the reserves recategorisation announced on January
9th 2004 are the subject of an independent review sponsored by the
Group Audit Committee ('GAC'), and the main conclusions of that
review will be made public after completion. This is expected in
April. Summary During the finalisation of the 2003 reserves data,
concerns arose about the volume of the proved reserves booking
proposed for the Ormen Lange field in Norway. As a result, the
Group's senior management engaged Ryder Scott Company as
consultants in March to help conduct a fast-track review of
selected fields covering approximately 40% of the global Shell
portfolio, including some 60% of proved undeveloped reserves. A
number of issues have been identified to date, leading to the
recategorisation of a further 250 million barrels of oil equivalent
('boe') as at the end of 2002. In addition Shell has reduced the
volume of proved reserves it planned to book in 2003 by
approximately 220 million boe of proved reserves (including volumes
from Ormen Lange). The 220 million boe were included in the reserve
replacement ratio ('RRR') disclosed on February 5th 2004;
correcting for these volumes represents a reduction in the 2003 RRR
of some 16 percentage points. Approximately 95% of the volumes
impacted by these reductions were previously booked as proved
undeveloped reserves from non-producing fields. As a result, the
expected impact on earnings is approximately $20 million. In
addition well write-off costs related to the original
recategorisation have been identified, amounting to $10 million
after tax. Shell is now validating these results by in-depth work
on the specific fields as identified by the recent review, and also
by examining the total portfolio, including those fields not part
of the recent study. This work is expected to be complete by late
April. All reserves and financial figures included in this release
should be regarded as preliminary. Final figures with respect to
both reserves and financial impact may vary from preliminary
results and will be disclosed as soon as appropriate. Other
highlights of this release: - A summary of the remedial actions
taken by Shell to date, to address the issues identified to date
and to improve the overall governance framework within the Group. -
As previously indicated on February 5th 2004, the Form 20-F of the
parent companies for 2002 will be amended. - As a result of the
ongoing technical review and the work required to accurately
restate the information for prior years and to hold discussions
with regulators, the publication of the 2003 Annual Reports, and
the filing of the 2003 Form 20-F with the SEC, for both parent
companies will nowbe in late May 2004. - The Annual General
Meetings ('AGM') of the parent companies will take place on June
28th 2004. - The Boards of both parent companies have declared a
second interim dividend for 2003, equal to the final dividends
proposed on February 5th 2004 and to be paid on the same dates.
Jeroen van der Veer commented "These have been challenging weeks
for the management of Shell, just as they have been very
disappointing for investors. The management of the Group is
committed to the highest standards of integrity, and to building on
the strong positions and assets, and outstanding staff, that we are
fortunate to have. "Our focus in 2004 is on delivering the strategy
to grow our upstream and gas businesses while enhancing downstream
profitability, and on delivering our business plans and targets"
Review of proved reserves to be recategorised During the
finalisation of the 2003 reserves data, concerns arose about the
proved reserves booking proposed for the Ormen Lange field in
Norway which had been included in the February 5th 2004
announcements regarding 2003 RRR. Shell has now determined that a
portion of the volume proposed to be booked at December 31st 2003
as proved reserves for Ormen Lange did not strictly follow SEC
guidance in that 3-D seismic data was used to define the "proved
area" (between well control points), without the necessary
supporting evidence that the guidance requires. This reduces the
proved reserves planned to be booked at end 2003 for Ormen Lange
from 256 million boe to some 90 million boe. There is no change in
the amount or timing of production expected from the field, nor in
the expected cost of production as a result of the review. This
reduction was of concern, given the profile of Shell's reserves
bookings and the attention that this field has already received.
The management team engaged an external consultant, Ryder Scott
Company, to help conduct a fast-track review of selected fields
covering approximately 40% of the total Shell portfolio (by proved
reserve volume), including some 60% of proved undeveloped reserves.
The review to date has not identified any further major or
widespread concerns. However a number of issues were identified
with specific fields, primarily in North West Europe and
Australasia. As a result, a further 250 million boe of proved
reserves will be recategorised as at the end of 2002. In addition
Shell has reduced the volume of proved reserves it planned to book
in 2003 by approximately 220 million boe (which includes volumes
from Ormen Lange). The 220 million boe were included in the RRR
disclosed on February 5th 2004; correcting for these volumes
represents a reduction in the 2003 RRR of some 16 percentage
points. Again, there is no change expected in the amount, timing or
cost of production from any of these fields. Approximately 95% of
the volumes impacted by these reductions were previously booked as
proved undeveloped reserves from non-producing fields. These
changes will lead to an increase in depletion, depreciation and
amortisation of approximately $20 million after tax for 2003. In
addition well write off costs related to the original
recategorisation have been identified, amounting to $10 million
after tax. These changes do not affect cashflows. Shell is now
validating these results by more in-depth work on the specific
fields identified by the recent review, and also by examining the
wider portfolio including those fields not part of the recent
study. The work, comprised of both commercial and technical data,
will take 6 weeks, and will confirm the quantity of reserves to be
booked as proved as at December 31st 2003, for inclusion in the
2003 Form 20-F and the Annual Reports of the parent companies. It
will also affect the quantity of reserves to be included in the
restated 2002 Form 20-F supplementary information (oil and gas).
All figures stated exclude oil sands that are classified as mining
reserves under SEC definitions. Governance and control actions
Shell has been changing its governance structures since the
mid-1990s to move from an organisation primarily governed through a
structure of 140 or so operating companies to one with four main
global Businesses. These changes, which are now effectively
complete, have been significantly reinforced in the last two years,
with the establishment of a simplified CMD structure, comprising
the main Business Chief Executive Officers ('CEO'), the Chief
Financial Officer ('CFO') and the Chairman of CMD. With the
establishment of the "New Exploration and Production ('EP')
Operating Model" in 2003, all Business CEOs now have clear line of
sight and accountability for the total global operations. At the
same time the role of global functions is being strengthened and
standardisation ofprocesses has been stepped up. External
regulations in the Netherlands, the UK and the US, and public
expectations, are becoming generally more stringent in the areas of
governance, compliance and transparency. Initiatives were already
underway withinShell to respond to these developments. Reviews have
highlighted the need for Shell to accelerate this work, and this
has led to a series of changes. Some of these changes have been
previously announced, but are repeated for sake of completeness.
The overall objectives of the various initiatives are to respond to
the external requirements, and to restructure internal management
processes and accountabilities to be both simpler and more
effective. Changes in Group governance, reflecting the
Sarbanes-Oxley Act (US), the Tabaksblat code (The Netherlands) and
the Higgs Report and Combined Code (UK), include: - The appointment
of a non-executive Chairman for The "Shell" Transport and Trading
Company, p.l.c. - Greater transparency in remuneration policies. -
Broader terms of reference for the GAC. In addition, Shell is
considering the views of investors and the various advisory bodies
in respect of overall governance of the Group, including the
composition and operation of the parent and holding company boards.
It is the intention that the outcome of this review will be made
public in good time to enable the process to be concluded at the
AGMs in 2005. Changes in the general internal governance framework
include: - Business initiatives to globalise, standardise and
simplify key business processes, in the main Businesses and support
functions, including Finance and Human Resources. - Revised
reporting relationships for Group Internal Audit direct to the
Group CFO, with the Group Chief Internal Auditor having direct
access to the GAC. - Main Business CFOs will report directly to the
Group CFO rather than their respective Business CEOs, and this
relationship between the Finance function and the Businesses will
be replicated throughoutthe organisation. Shell recognises that
restoring confidence and credibility in reserves reporting
practices is vital. Shell is determined to resolve all these issues
in the most timely and transparent manner possible and to eliminate
chances of a recurrence. The following improved controls are either
in place or in progress: - The GAC reserve review process is
established, with CMD signing off reserves annually. - Reserves
auditors now report to Group Internal Audit, outside the business
line. Reserves reporting within EP now reports through the
technical rather than planning function. - The global EP Reserves
Committee is in place, with the approval process requiring peer
challenge at a regional level. - Shell reserves reporting
guidelines are being revised to remove any remaining ambiguity in
the application of SEC rules and guidance. - Guidelines include
clear, auditable commercial triggers for recognising new proved
reserve bookings, and will include clearer guidance on technical
and commercial issues. - Overall there will be a significant
increase in staff dedicated to reserves management, including both
dedicated reserves auditors and the systematic use of external
experts in the Business reserves challenge and review processes.
External experts will also contribute as appropriate to the overall
audit resource. The frequency of country reserve audits will be
increased, with important countries now audited on an annual cycle.
- Reserves bookings have been removed from performance scorecards
(used for calculating management bonuses) of individuals associated
with the reserves assurance process, including senior executives.
Previously, for EP executives, they had constituted between 5 and
15% of the total available bonus for individuals in a given year,
which in most cases equalled no more than 5% of the executives'
base pay. - Proved reserves reporting is now specifically included
in the existing Group assurance process and disclosure controls
review. The existing assurance process requires management at all
levels of the organisation to provide annual written assurance on a
series of reporting and control activities. - A major programme of
focused training of global EP staff is being initiated, to ensure
that SEC rules, guidance and compliance requirements are fully
understood and adhered to throughout the organisation. Group
Managing Directors will receive no performance related bonus for
2003. Full details of the 2003 remuneration of executives will be
available in the Annual Reports for the parent companies.
Independent Review On February 5th 2004 it was announced that the
GAC had established a senior team, led by independent counsel Davis
Polk & Wardwell, to carry out an independent review of the
processes surrounding past reserves bookings. The objective of this
review is to establish in an objective fashion the facts and
circumstances relating to the reserves recategorisation. This
review is expected to conclude in the next few weeks. Two senior
management changes resulting from the reserves recategorisation
have already been announced. The review is still in progress and if
additional actions are identified they will be actioned and
announced as appropriate. Regulatory authorities The formal
non-public investigation being carried out by the SEC continues.
Shell is cooperating by providing documents and information. The
Autoriteit Financiele Markten (AFM), the financial regulatory body
in the Netherlands has commenced an investigation about potential
insider trading. Euronext, of which the Amsterdam Stock Exchange is
a member, has asked questions in two letters. The first of these
addressed the disclosure processes around the January 9th 2004
announcement. The second asked broader questions about the facts
and circumstances leading up to the disclosure of the reserves
recategorisation. The Financial Services Authority (FSA) in the UK
has asked a series of questions in a letter about the facts and
circumstances surrounding the reserves re-categorisation. The
correspondence and discussions with the regulatory authorities has
been constructive, and information has been exchanged in an open
way. Shell will continue to act in this cooperative way until the
various enquiries are complete, and any actions relating to these
matters will be made public at the appropriate time. Until that
time, it is reasonable to expect that Shell will protect the
confidential nature of discussions of the authorities concerned.
Reporting dates for annual publications Following correspondence
and discussions to date with the staff of the SEC, the 2002 Form
20-F for the parent companies will be amended to reflect the
recategorisation as well as to address other SEC staff comments.
The "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" section of the 2002 Form 20-F document
will be amended, and some disclosures will be increased. As a
result of the ongoing technical review and the work required to
accurately restate the reserve related information for prior years,
the publication of the 2003 Annual Reports, and the filing of the
2003 Form 20-F with the SEC, for both parent companies will be
later than indicated previously. All reports are now expected to be
published by late May 2004, exact publication schedules will be
released as soon as they are available. The Financial and
Operational Information document will be available at the same time
as the Annual Reports. The financial results for the first quarter
of 2004 are expected to be published as scheduled on Thursday April
29th 2004. Annual General Meetings The Annual Reports are required
to be published and distributed to shareholders ahead of the AGMs
of both parent companies. Both AGMs were scheduled to be held on
April 23rd 2004. Both meetings will now be delayed, and are
expected to be held on June 28th 2004. Details of the meetings will
be announced as soon as the arrangements have been confirmed.
Interim dividends The proposed final dividends for2003 that were
announced on February 5th 2004 will now be paid in May 2004 as a
second interim dividend in respect of 2003. The amount of the
second interim dividend payments will be equal to the final
dividend proposed on February 5th 2004; per shareamounts will be
EUR1.02 for Royal Dutch and 9.65p (per ordinary Share) for Shell
Transport. Including the first interim dividends, the total
dividends for 2003 will be EUR1.76 for Royal Dutch and 15.75p (per
ordinary Share) for Shell Transport. Each parent company has issued
a separate stock exchange announcement giving full details of the
second interim dividend, simultaneously with this release.
Disclaimer statement This document contains forward-looking
statements that are subject to risk factors associated with the
oil, gas, power, chemicals and renewables businesses. It is
believed that the expectations reflected in these statements are
reasonable, but may be affected by a variety of variables which
could cause actual results or trends to differ materially,
including, but not limited to: the ongoing review of reserves
estimates being conducted by management and its consultants, the
results of the independent review sponsored by the Group Audit
Committee, the outcome of the ongoing enquiries by the regulatory
authorities, price fluctuations, actual demand, currency
fluctuations, drilling and production results, reserve estimates,
loss of market, industry competition, environmental risks, physical
risks, the risks of doing business in developing countries,
legislative, fiscal and regulatory developments including potential
litigation and regulatory effects arising from recategorisation of
reserves, economic and financial market conditions in various
countries and regions, political risks, project delay or
advancement, approvals and cost estimates. Cautionary Note to US
Investors: The United States Securities and Exchange Commission
('SEC') permits oil and gas companies, in their filings with the
SEC, to disclose only proved reservesthat a company has
demonstrated by actual production or conclusive formation tests to
be economically and legally producible under existing economic and
operating conditions. The Royal Dutch Petroleum Company and Shell
Transport & Trading Comp DATASOURCE: ; CONTACT: For additional
information please contact:Investor Relations: Simon Henry,
+44-20-7934-3855; Gerard Paulides,+44-20-7934-6287; Bart van der
Steenstraten, +31-70-377-3996; Harold Hatchett, +1-212-218 -112;
Media Relations: Andy Corrigan, +44-20-7934 5963, Simon Buerk, +44
20-7934 3453, Herman Kievits, +31-70-377-8750
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