Shell was yesterday rapped by financial watchdogs for a catalogue of failings that led to it inflating its oil and gas reserves.

Fines totalling £82.7 million were confirmed against the group after investigations by the Financial Services Authority (FSA) and Securities and Exchange Commission (SEC) in the US found it committed market abuse.

False or misleading statements were given to investors about the extent of Shell's reserves as far back as 1998, the FSA said.

This was compounded by a failure to put in place internal controls to prevent misleading information being given to markets until 2004, it added.

The FSA criticised the company for ignoring indications in 2000 that its reserves were incorrect, which had snowballed into warnings by 2002.

Around £2.9 billion was wiped off the value of Shell on January 9 when it stunned the market by revealing its reserves were 20% lower than previously thought.

It later cut its reserves a further three times in a crisis that claimed the scalps of three senior executives, including chairman Sir Philip Watts.

The FSA fine of £17 million, which was first disclosed by Shell in July, is four times more than the heaviest penalty previously imposed by the regulator.

Enforcement director Andrew Procter said the size of the fine reflected the "seriousness of Shell's misconduct and the impact it had on markets and shareholders".

A penalty of £65.7 million was also imposed by the SEC, which found Shell either deliberately misled it or was "reckless" in not knowing its reserves had been overbooked.

The SEC warned the company on several occasions before autumn 2003 that it was making unrealistic production forecasts, especially in Nigeria and Oman.

But these warnings were rejected as "immaterial or unduly pessimistic", or the company attempted to "manage" the potential exposure by delaying the restatement of its reserves, the SEC said.

SEC administrator Harold Degenhardt said other inquiries into the reserves crisis continued: "We intend to focus on, among other things, the people responsible for Shell's failures."

The FSA also confirmed that more investigations were ongoing, although the company itself would face no further penalties.

Shell said that agreeing to the fines did not mean it admitted the findings or that it was free of blame.

Chairman Jeroen van der Veer said the settlements represented "another significant step" in putting the reserves crisis behind the group as it began to restore its tarnished reputation.

Wednesday August 25, 2004