US watchdog opens Shell inquiry

Shell's caution has cost it the support of investors

Oil and gas giant Shell has come under the spotlight of the US market watchdog following its recent admission that it overestimated its reserves.

The Securities & Exchange Commission has now upgraded its informal inquiry to a formal investigation, Shell said.

The group saw its shares slide 15% in January after it downgraded its proven oil reserves by a fifth.

The downgrade was itself partly the result of an SEC rule on how oil firms can define their stocks.

Definitions

In a statement, Shell said the inquiry would be a non-public one, and promised the SEC's investigators every co-operation.

The firm's defenders point out that the SEC's rulebook is itself part of the problem.

"Proven" reserves, it says, are those where oil has been drilled; as-yet untapped oil and gas fields are only "probable".

This distinction is nowhere near as rigid in other countries, and some say fails to take into account modern sound-based exploration - so-called seismic imaging - which does not require drilling to prove viability.

Action

But some disgruntled shareholders disagree, pointing out that no other oil firm has had to take such a swingeing downgrade.

They say the company had been over-optimistic, and blame current chief executive Sir Philip Watts - previously head of the group's exploration division - for the shortfall.

Several shareholders have launched lawsuits, saying the value of their holdings has fallen because of the firm's actions.