Shell 'lied to City'

The City was rocked today when Shell admitted it had organised a campaign of lies to investors.

Former executives, led by ex-chairman Sir Philip Watts, admitted they had repeatedly lied to investors about the true level of Shell's oil and gas reserves.

The scandal is certain to lead to a wave of legal cases from furious investors who believe they have lost billions as a result of a fall in Shell's share price since the overstatement of reserves first came to light in January.

There is also a possibility of criminal charges being brought against executives by American financial authorities.

The unfolding debacle also claimed a third senior scalp today. The Anglo-Dutch multi-national said chief financial officer Judith Boynton, one of Britain's most senior female industrialists, had "stepped aside".

She will remain an adviser until June when she is expected to leave with a pay-off worth up to £1 million.

The scandal is seen as one of the most damaging at any blue-chip British firm of its stature since the Guinness affair in the mid-Eighties. Shell is Britain's scandal is seen as one of the most damaging at any blue-chip British firm of its stature since the Guinness affair in the mid-Eighties.

Shell is the UK's seventh largest public company and a pillar of the global business establishment.

The statement to the Stock Exchange revealed how some of Britain's most respected industrialists orchestrated the huge deception of shareholders over at least seven years.

It revealed how senior executives had exchanged furious emails over what they should tell shareholders about projections of reserves.

In November last year the former head of Shell's oil exploration division, Walter van de Vijver, sent an email to his boss, ex-chairman Sir Philip Watts, saying: "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 ... optimistic bookings."

Today's statement, which follows an internal inquiry by a leading US law firm, also revealed Mr van de Vijver ordered the destruction of a report drawn up for him on the overstatement of oil reserves.

The levels of "proven" reserves disclosedby the company are hugely important for the City as they are one of the primary methods of valuing it and have a massive impact on the share price.

In January the company, the world's third biggest oil business, was forced to admit to investors that it was downgrading 3.9 billion barrels of reserves, about 20 per cent of its total, triggering a disastrous run on its shares. The downgrade was increased today to 4.35 billion barrels after more than 100 of its oil and gas fields were reassessed.

The January disclosure caused a shareholder furore that led to the resignations of Sir Philip and Mr van de Vijver.

Today, Shell's joint chairmen, Aad Jacobs and Lord Oxburgh, said the internal report revealed "disturbing

deficiencies in our past reserves reporting practices and the manner in which Shell dealt with these issues. We have accepted these difficult findings in full and have taken vigorous action

.... Shell simply cannot allow this to

happen again."

However, Lord Oxburgh insisted there was no evidence of "personal financial impropriety".

The breathtaking scale of the scandal even forced Shell to issue an unprecedented statement reassuring shareholders of its financial health.

The report revealed huge internal failings. The group, which employs more than 100,000 people, had only one part-time member of staff checking its own claims about its reserves.

In a statement, the unnamed employee said: "With hindsight I should have been more forceful ... It would have been a clear break with all my predecessors and it probably would have cost me my job in those days, but I should have."

It also revealed the levels of reserves help determine senior executives' remuneration. US regulators asked Shell not to release the full text of the report from Wall Street law firm Davis Polk and Wardwell while officials trawled the findings for evidence of possible criminal wrongdoing.