Institutional Investors Call for Shell Reserves Audit

November 9, 2004 ( - The nation's largest public pension fund is pressuring Royal Dutch/Shell Group, to require external auditing of its oil and gas reserves.

The California Public Employees’ Retirement System (CalPERS), with $168 billion of assets, and Knight Vinke Asset Management LLC asked the company for the reviews in an e-mailed press release, Bloomberg reported. Shell, based in London and The Hague, said it’s already using outside help to examine its reserves and that it meets the rules set by the Securities and Exchange Commission (SEC).

In  June CalPERS said that Shell was one of four companies it was targeting as part of its annual corporate governance campaign. Shell drew scrutiny because of the overstatement of oil reserves and Shell’s former dual corporate structure, which CalPERS claimed failed to respond to shareholder demands and helped depress its stock compared to industry peers.  Today CalPERS and Knight Vinke Asset Management praised Royal Dutch and Shell Transport & Trading for turning the corner with improved corporate governance — but urged the reorganizing oil giant to lead the oil industry to the high ground of more transparent and meaningful reporting on reserves.  The Anglo-Dutch oil group’s proposal to form one company, with one board and a real CEO, addresses concerns that its complex dual corporate structure has hindered efficient management and accountability to shareowners.

Shell this year cut its reserves four times, leading to Philip Watts’s ouster as chairman and a decision last month to unify its parent companies, ending almost a century of joint British-Dutch management, according to the Bloomberg report. The two funds also called on Shell to use extra cash from rising oil prices to buy back stock.

Knight, whose company manages the equivalent of about $385 million, said about 60% of Shell’s reserves were independently audited this year and it’s done most of the work to complete the process and to report annually.   Shell “can and should lead the industry forward by raising the bar on how it audits and reports assets,” CalPERS President Sean Harrigan said in a statement issued by the two investors.  CalPERS made a $200 million investment last year in Knight Vinke Institutional Partners, a fund managed by Knight Vinke Asset Management, New York, that invests in sound but underperforming public companies where sub-optimal stock market or operating performance can be attributed in some way to poor governance, broadly defined, and works closely with institutional and other shareholders, as well as management, to overcome or redress these problems.

Shell said in a statement it is “committed to provide the systematic and consistent use of external reserves experts in both the line reserves challenge process and the internal audit process going forward, including the provision of expert advice to the Group Audit Committee.”

CalPERS annual review list also targeted Walt Disney Co. because of a dispute involving Chief Executive Michael Eisner, as well as Emerson Electric Co. and Maytag Corp.