SEC probes into Shell downgrade

SHELL'S troubles escalated as the US Securities and Exchange Commission (SEC)launched a formal investigation into its shock reserves downgrade on 9 January.

The powerful watchdog has been conducting an informal probe for some weeks. Now it has told Shell's lawyers that this will 'proceed as a formal non-public investigation'.

Shell said: 'This is not a criminal investigation.'

The oil giant has been particularly criticised for 'booking' as proven reserves oil and gas in cases where no decision had been taken on whether the reserves would be commercially developed.

These included assets in Nigeria - one of its biggest producing regions - and the Gorgon gas field in Australia. Shell first counted Gorgon as probable reserves, then called it 'proven' in a 'revision' filing to the SEC. The whole project was later put on hold.

The SEC's enforcement staff investigates possible violations of US securities laws. It has powers to subpoena witnesses, but Shell says it will ' continue to cooperate fully'.

Shell's hopes that other oil companies would follow its example and downgrade reserves have only partly been borne out.

Texas group El Paso Oil & Gas alarmed Wall Street this week by slashing 41% off its reserves. But giants BP and ExxonMobil reaffirmed their reserves. Exxon increased Shell's discomfort by adding 1.7bn barrels to its proven reserves during 2003.

Chairman Sir Philip Watts is continuing a round of talks with big shareholders on streamlining the Anglo-Dutch group's structure.

That may involve a greater role for 'the conference' - a group made up of 24 full and part-time directors from the UK and Dutch companies.