LONDON -- A top executive of Royal Dutch/Shell Group of Cos. wrote in an e-mail that he was "sick and tired about lying" about the company's inflated oil and gas reserves estimates, an investigation commissioned by Shell reported yesterday.
The inquiry found some Shell bosses knew for almost two years that the company had publicly overstated the size of its reserves. The shaken oil giant also said its chief financial officer had stepped down, the latest in a string of high-level casualties since Shell's disclosure in January that its confirmed oil and gas holdings were much smaller than claimed.
The company said yesterday that it had downgraded a total of 4.35 billion barrels, or about 22 percent of its reserves, from "proven" to less certain categories. That is 200 million barrels more than its previous estimate.
Shell said in January that it was downgrading 3.9 billion barrels, or about 20 percent of its total holdings. A March revision brought the total downgraded to 4.15 billion barrels.
The disclosures caused a shareholders' uproar and led to a string of resignations. Reserves are an oil company's most valuable asset, and any reclassification into less certain categories is a major concern for investors.
Shares in Shell Transport & Trading Co. fell 0.76 percent yesterday to $7.06 on the London Stock Exchange.
"Shell has unquestionably stumbled and has learned a tough lesson," said Lord Oxburgh, chairman of Shell Transport and Trading Co. PLC, the British component of the Anglo-Dutch group. "The story that has unfolded is not one of which anyone can be proud," Oxburgh said. "Our procedures for booking reserves were seriously flawed. There are explanations, but there can be no excuses."
A summary of an outside investigation into managers' conduct, made public by Shell, said executives in its exploration and production division had exaggerated the size of reserves and failed to act when it became clear the estimates were unrealistic.
Walter van de Vijver complained about the estimates after he took over as chief of the division in June 2001, replacing Philip Watts, who had been promoted to Shell chairman.
The report said van de Vijver notified Shell's managing directors in February 2002 that the company's reserve classification rules did not match those of the US Securities and Exchange Commission and that Shell might have overestimated its reserves by 2.3 billion barrels.
"I am becoming sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/optimistic bookings," van de Vijver wrote in a November 2003 e-mail to Watts that was released in the summary.
Watts and van de Vijver resigned last month after lawyers at the New York-based Davis, Polk and Wardwell firm gave Shell a preliminary version of their report, prepared with former and current Shell employees.
"It's incredible, really, to think that this kind of thing was going on at the top of a company with a reputation for such conservatism," said Jim Washer, editor of International Petroleum Finance, an industry newsletter. "You don't really expect blatant deceit."
Washer said that by releasing nearly final revisions of its reserve estimates, Shell may have come close to ending concerns about those numbers.
But the damage to the company's reputation could linger, particularly since the SEC, the US Justice Department, and European regulators are all investigating, Washer said.
Shell said that Judith Boynton quit her post as group chief financial officer but will stay at the company as an adviser at least until June. Oxburgh said Boynton had not been guilty of any financial impropriety.
The lawyers' report said she was responsible for Shell's financial statements and had failed to check the accuracy of the reserve estimates. But it added that her responsibility may have exceeded her authority.
Shell is the world's third-largest public oil company in terms of market capitalization.