Shell Oil Reserves Controversy - Case Study Example

? Running Head: MANAGEMENT Management Case Study on Royal Dutch/Shell Oil Reserves Controversy Introduction Reports showthat royal Dutch/shell has been mixed up in inflating its oil assets. It analyses how it has considerably tarnished its image being one of the best competently managed companies. The study provides comprehensive insights into the part played by the high rank management at the company leading to controversy of oil reserves. It describes proceedings leading to the announcement by Shell Company to amend oil reserve records. It also analyses lessons learnt from the disagreement. After an interview review, which was done on January 2004, the shell group management gave out a statement that it was declining approximately four billion barrels of its established gas and oil reserves to a likely category. This was about twenty percent of the shell’s total oil reserves. . A declaration from the shell that had been treated as an old company surprised the oil industry and financial markets. This led to standardization episode of new accounting. In 2003, El Paso Company declared reduction of its gas reserve by 34%. Those who analyzed this believed that there was no sufficient evidence that the shell company had criminal wrongdoing. There was insufficient local standard or company’s agreement on the approach of categorizing reserves. The Controversy As the decline revision of the specified oil reserves by Shell Company had shaken most investors, the inner report provided by the company to the public in 2004, made them more worried. This report argued that the high rank group of managers at Shell Company knew about the changed reserves for many years and had been negotiating whether and how to cheat on the investors. The report had a statement, which was quoted allegedly made in a mail by vive. He was then the CEO of the shell unit, the chairperson of the executive management. Shell then corrected the overstatements in the revised filing, which was done on two, July 2004, that reflected the magnitude of shell’s overstatement. This was for the years from 1997 to 2002. During the time of declaration of an order against Shell Company, the SEC at the same time made its intentions to be well known. They wanted to pin the scandal of the reserves to individuals. It was reportedly that they stated intention of the company to take action against individuals within and outside the company. The annual and accounts report of the shell company of 2003 stated that proven reserves declined by 6.648 mn USD in the end of the year 2001, and it declined by 6.6469 mn USD in the year 2002.this translated to approximately 13% of the past proven oil reserves base. It was also stated that in the past years, proven reserve base was linked to leading management’s bonus payments. This culture has been stopped from that time. The disagreement over the overstatement of gas and oil reserves of the company led to resignation of Sir Philip watts who were then the chairperson. The head of production business and exploration. Walter Van Der verger departed and was followed by CFO Boynton Judy. The economists reported in march 2004 that one of the united states law firms had claimed that the company recklessly dishonored rules of accounting and its guidelines. They stated that this is what resulted in a shocking enormous exaggeration of gas and oil reserves. The law firm, Berger & Montague, was then suing Shell Company on behalf of the owners as they had exaggerated the market value of the firm. The inner report provided by the company to the public in 2004, made them more worried. This report argued that the high rank group of managers at Shell Company knew about the changed reserves for many years and had been negotiating whether and how to cheat on the investors. Analysts reported that the law firm, Berger, was only one among the many law firms who were launching case. The article implied that the proven oil reserves recategorisation was because of long-term active issues. The royal Dutch/shell Company lost AAA as more consequences recategorization of the oil and gas reserves. On 24 august 2004, the financial service authority declared that it had forced a penalty of 17 million UK pounds on the shell trading and transporting company. In mid 2006, Shell Company established that that they had set aside $500M to cater for the outstanding action of litigation due to mis-statements of the oil and gas reserves. January 2006, the shell group was sued by Dutch pension funds supposedly having approximately 5% of the shell’s shares. Relevant class activity tabled on 6 January 2006 by the Dutch company, Luxembourg and German institutional shareholders were consolidated with pre trial class action, which was existing. The beginning stage of the allegation was completed. A review of complaint had been filed and responded to by the defense. Detection had started. According to the annual report of the shell company, court was to hold hearings in July 2007 concerning different legal issues, which included plaintiffs for class certification. It was also to determine whether central securities laws relate to claims of the potential class members who are non- us. The court was also to rule on various summary allegations filled by the shell company. Many analysts concluded that the shell company failed because of luck of good management and poor decision making that came from large charities. The ownership of the Dutch/ shell ownership structure contributed to its failures. The company should come up with a new body of professional managers. The company should have a competent decision making body that can foresee a problem before the consequences. Conclusion The research examined the technique used by the company to boost its confidence in doing business and analyses lessons learnt from the disagreement. The inner report provided by the company to the public in 2004, made them more worried. This report argued that the high rank group of managers at Shell Company knew about the changed reserves for many years and had been negotiating whether and how to cheat on the investors. The ownership of the Dutch/ shell ownership structure contributed to its failures. The company should come up with a new body of professional mangers. References Wesseling, Louis (2000). Fuelling the War. Revealing Oil Company’s Role in Vietnam. London B Tauris & Co Ltd Sierra (2000). Defending Those Who Give The Earth A Voice. Christian Aid, Behind the Mask. Sierra club . Read More