Royal Dutch Shell Environmental and reputational issues
South Africa
During the 1980s Shell was accused by anti-apartheid activists of supporting and sustaining the apartheid regime while pursuing business opportunities in the Republic of South Africa. Annual General Meetings of The Two Group holding companies were disrupted by protesters and Shell was also accused of sanctions breaking. Shell always argued that unlike other multinationals who withdrew (e.g. Mobil), it could be more of a force for good by staying in the country than by leaving.
Nigeria
Shell operates a joint venture with the government in Nigeria under the name Shell Petroleum Development Company (SPDC). In the early 1990s, Ken Saro-Wiwa, president of the Movement for the Survival of the Ogoni People (MOSOP), led a non-violent campaign against environmental damage associated with the operations of multinational oil companies, including Shell and British Petroleum, in the Ogoni homelands of the Niger delta. In January 1993, MOSOP organised peaceful marches of around 300,000 Ogoni people – more than half of the Ogoni population – through four Ogoni centres, drawing international attention to his people's plight. That same year, Shell ceased operations in the Ogoni region. Shell's involvement in Nigeria came to the fore again in October 1990 when a peaceful protest in Umeuchem escalated. Eighty people were killed by the police and 495 homes were destroyed. Shell states that it merely asked for police protection. In 1995 Ken Saro-Wiwa and eight others were executed. Ken Saro-Wiwa had implicated Shell during his “treason” trial by saying “…the ecological war that [Shell] has waged … will be called to question sooner than later and the …crime of the Company's dirty wars against the Ogoni people will also be punished.” Shell was also found to be providing money and supplies to the Nigerian military. When Saro-Wiwa was executed on trumped-up charges, some of the world-wide condemnation of the act was aimed at Shell, which was implicated by association.
Shell has continued to be condemned by bodies such as Christian Aid, who reported that despite Shell claims of "honesty integrity and respect for people" it had "failed to use its considerable interest in Nigeria to bring about change in the Niger delta". The report also found evidence of failures to clean up oil spills, pollution of rivers and water courses, and non-completion of promised projects for community improvement. In 2001 a study into the community projects was leaked to The Economist. It reported that of 81 projects visited by the reviewers of the scheme, 20 did not exist, 36 were partially successful and 25 were working.
Brent Spar
Shell was also challenged by Greenpeace for plans for subsea disposal of the Brent Spar, an old oil transport and hub station located in the North Sea, into the North Atlantic. Shell eventually agreed to disassemble it onshore in Norway, although it has always maintained that its original plan to sink the platform was safer and better for the environment.
On disposal, it was proved that the Greenpeace claims for toxic content were wrong.
Brent Bravo
Brent Bravo is a Shell offshore production platform operating in the North Sea. On 27 April 2005, Shell UK Limited, trading as Shell UK Exploration and Production (Shell Expro), was fined £900,000 (UK pounds) after pleading guilty to offences under health and safety legislation. The case followed a Health and Safety Executive (HSE) investigation into the deaths of two Brent Bravo workers on 11 September 2003. Sean McCue and Keith Moncrieff were inspecting pipework in the utility leg of the platform, when they were overcome by a large release of gas. The following is an extract from an HSE press release issued on the same date, 27 April 2006: “HSE conducted an extensive investigation. Shell co-operated fully and has admitted to fundamental failures in health and safety management on Brent Bravo. This has been reflected in the penalties imposed by the court today. Essential barriers to the unplanned release of hydrocarbon gas that should have been in place were not – even though these were not high-cost items for an offshore operator. As a direct consequence of these failures, two men died.” The results of a subsequent Fatal Accident Inquiry released on 18 July 2006 concluded that the deaths “might reasonably have been prevented”. As reported in the news, another worker, electrician Graeme Burns, died while carrying out maintenance work with a colleague on Brent Bravo on 1 January 2005. On 31 May 2005, a water condensate tank exploded at a NAM location near Warffum in The Netherlands. The two victims were both contractors’. NB NAM a Shell/Esso joint venture, operating in The Netherlands.
Canada
In Canada, Shell Canada settled a lawsuit in which an additive in their gasolines created problems on fuel gauges, especially in automobiles produced by DaimlerChrysler.
Ireland
In Ireland, Shell has drawn criticism by attempting to pipe unrefined gas from the Corrib Gas Field onshore and to refine it at a plant in north County Mayo, through private property. This was in line with the plans agreed by Enterpise Oil, whom Shell took over. In the summer of 2005, five people were sent to prison for three months on the basis of an injunction obtained by the company. They became known as the "Rossport Five". There is currently a campaign by local people in the form of Shell To Sea whose aims are to get Shell to change their current plans for the pipeline and refinery. There is also a solidarity camp where people from outside the locality live and visit to support the campaign.
Opposition has been for a number of reasons:
1. Questions over the safety of the proposed pipeline - protestors have called for the project to be taken out to sea, instead of running pipeline across land close to inhabited areas.
2. Shell's attempts to force building to go ahead, without consultation with local people.
3. The Irish government's decision to allow the consortium of companies led by Shell to keep profits from the enormous Corrib Gas Field, although as usual for such fields, the vast majority of proceeds will be taken as tax.
Despite large protests from local people and Rossport Solidarity Camp, Shell - aided by large numbers of Gardaí from throughout Ireland - attempted to restart work on the pipeline on 3 October 2006.
Oil and gas reserves recategorisation
The announcement on 9 January 2004 by the Royal Dutch Shell Group of the downgrading of its hydrocarbon reserves drew fire from shareholders, financial analysts, the media (e.g. news report 20 April 2004) and the U.S. Securities and Exchange Commission (SEC) after announcing the recategorization of its hydrocarbon reserves, admitting that a significant share of reserves previously booked as proven did not fulfill the requirements for proof under the US regulatory provisions. According to the SEC Cease and Desist Orderof 24 August 2004, Shell overstated proved reserves reported in its 2002 Form 20-F by 4.47 billion barrels of oil equivalent (boe), or approximately 23%. The order further concludes that Shell also overstated the standardized measure of future cash flows reported in this filing by approximately $6.6 billion. Shell corrected these overstatements in an amended filing on 2 July 2004, which reflected the degree of Shell's overstatements for the years 1997 to 2002. At the time of announcing the order against Shell, the SEC simultaneously made known its intention to "pin the reserves scandal on individuals" reportedly stating that it intended to take action against people inside and outside the company.
Shell's Annual Report and Accounts 2003 restated proven reserves reduced by 6.648 mn USD in 2001 and reduced by 6.469 mn USD in 2002. This corresponds to roughly 13% of the previous proven reserves base. In addition, it was identified that in previous years leading management's bonus payments were linked to the proven reserves base. This practice has since been discontinued. The controversy over the exaggeration of the oil and gas reserves of Shell resulted in the resignation of the then chairman Sir Philip Watts1, and the departure of the head of the Exploration and Production business Walter van der Vijver and the CFO Judy Boynton.
In March 2004 The Economist reported that American law firm Berger & Montague had claimed that Shell “recklessly violated accounting rules and guidelines, which resulted in an enormous and shocking overstatement of oil and gas reserves" (the law firm was then suing Shell on behalf of shareholders claiming that the overstatement had harmed shareholders as they had “severely overstated” the firm's market value). The Economist further reported that Berger was only one of several law firms launching cases. The article went on to imply that the reserves recategorisation was the result of active, long term problems, calling it "a scam of Enron proportions." 2
As a further consequence of the reserves recategorisation, on 19 April 2004, Bloomberg reported that the Royal Dutch/Shell Group had lost its AAA credit rating with Standard & Poor's which it had previously maintained for 14 years.
On 24 August 2004, the UK financial regulator, the Financial Services Authority (the FSA) announced that it had imposed a penalty of £17 million pounds (UK) on The “Shell” Transport and Trading Company P.l.c. and The Royal Dutch Petroleum Company NV.
In July 2006 Shell confirmed that the company had set aside $500m to settle outstanding class action litigation in respect of the reserves mis-statement issue.
In January 2006, Shell was also sued by a group of Dutch pension funds allegedly holding about 5% of Shell's shares3.
Sustainable development
On 17 June 2004, Shell chairman Lord Oxburgh made a statement to The Guardian that in the face of the threat of global warming he was "really very worried for the planet”. As a remedy he proposed the practise of carbon sequestration, which involves removing carbon dioxide from the atmosphere and burying it underground (putting it back where it came from). "Sequestration is difficult, but if we don't have sequestration then I see very little hope for the world", he said. Lord Oxburgh's comments were consistent with Shell's stated commitment to sustainable development, which was a key part of the reputation building efforts that the group undertook after Brent Spar.
Sakhalin
Sakhalin-II is an oil and gas project led by Shell on Sakhalin Island in Russia that involves the piping of oil and gas to an oil terminal and the construction of Russia's first liquefied natural gas LNG plant. The project has been controversial from the start for cost, environmental and community relations reasons. In the summer of 2005 “Sakhalin Energy”, the project operator, doubled its estimated capital costs to around $20 billion and LNG production was delayed until 2008. Shell expressed “surprise” at this huge increase. Environmental reasons accounted for part of the budgetary errors. Pipeline routes from the platforms to the island had to be changed to avoid the feeding grounds of an endangered species of whale and redesign was needed to prevent the onshore pipelines from damaging the environment. The local community on the island has protested about damage to fishing and to reindeer herding, their most important economic activities.
The environmental and social concerns came to a head at the end of November 2005 when the Chief Executive of WWF, Robert Napier, said that it would have a "negative impact on Sakhalin's people and environment". The timing of this attack was difficult for Shell and the other consortium partners as they were seeking financing for the project from the European Bank for Reconstruction and Development (EBRD) at that time. WWF has asserted that Sakhalin-2 threatens marine life as well as potentially damaging the local communities in the region. The EBRD is required to adhere to the "Equator Principles" that require all lendings it makes to meet ethical guidelines. Shell has commented on WWF's assertion by saying that the project meets lenders' policies and that environmental and social issues have been met.
In September 2006, Oleg Mitvol, the deputy head of the Russian Federal Service for the Oversight of Natural Resources, called for construction work to be halted and threatened to revoke environmental authorisation for Sakhalin II pipeline installation. The grounds given for the possible revocation included alleged negligent installation work, safety breaches and violation of the pipeline route plan. Mitvol alleged that damage already caused to the environment would cost $50 billion to repair. The move was supported by President Putin, said to be furious that the estimated project cost had doubled to $20 billion. The increased cost will delay the date that revenues flow to the state under a Production Sharing Agreement (PSA). NGO’s concerned about the impact of the project on the endangered Western Gray Whale population supported a related re-evaluation process by the Russian environmental ministry. Energy analysts believe alleged violations of the permit are in fact a pretext by the Russian government to pressure Sakhalin Energy to sell a large stake to the state gas monopoly, Gazprom. It is also possible that Russia wishes to renegotiate the PSA. The uncertainty generated by Russian ministry announcements and comments attributed to President Putin has created an international furore with high level protests from many governments, including the USA, the UK and Japan. The EBRD has put back a decision on project funding pending clarification of the situation, including a threat by the Russian authorities to launch legal proceedings against Sakhalin Energy.
The spiralling project costs have continued to undermine confidence in Shell's reputation for project manangement. On 22 October 2006 an article in The Observer reported that a leaked internal report by the Russian government estimated that the final cost would now reach $28 billion. Alfred Donovan and his son John Donovan, the owners of a website Royaldutchshellplc.com outspokenly critical of Shell management, claim to have supplied important information to the Russian government since September 2005 concerning Sakhalin II project costs and environmental issuesincluding leaked internal correspondence between senior Shell managers. Recipients of the information purportedly include Oleg Mitvol, the aforementioned Deputy Head of RosPrirodNadzor, vividly described in a Guardian newspaper article as a [http://business.guardian.co.uk/story/0,,1886783,00.html “Kremlin attack dog”] - “6ft 2in and dressed in a black coat”.
In November 2006, Oleg Mitvol confirmed in an interview published in "This Week in Argus FSU Energy", that the evidence on which a prosecution against Sakhalin Energy claiming $10 billion in damages was being mounted, was supplied by John Donovan of royaldutchshellplc.com. Mr Mitvol is quoted as saying: "Who will take Sakhalin Energy to court? I will take them. I have documents proving that the Sakhalin Energy management was aware that the company violated technical standards, but carried on trying to meet project deadlines and refused to stop work. I am confident of winning my case in Stockholm. What documents are these? Where are they from? I have email correspondence between executives in Sakhalin Energy management from 2002. I received these letters from John Donovan, owner of the anti-Shell website www.royaldutchshellplc.com."
Further confirmation that the alleged incriminating evidence was supplied by John Donovan was contained in a report published by "Johnson's Russia List" sourced from the Russian news agency, Interfax. The article, dated 13 November 2006, stated: "On October 19, Rosprirodnadzor deputy chief Oleg Mitvol sent a letter to Sakhalin Energy CEO Ian Craig, asking him either to confirm or deny information contained in confidential e-mails from Shell natural gas field manager Hans Bouman to Engel Van Spronsen, then Sakhalin Energy technical director in 2002. Copies of the e-mails were forwarded to Rosprirodnadzor from John Donovan, a Shell shareholder and the owner of a website providing news on Shell."
Fictitious trades
In January 2006, Royal Dutch Shell Plc agreed to a $300,000 settlement in respect of allegations that “two of its subsidiaries engaged in “fictitious” crude oil futures trades on the New York Mercantile Exchange.” Shell Trading U.S., located in Houston and London-based Shell International Trading and Shipping, agreed to pay $200,000 to settle a Commodity Futures Trading Commission case. Nigel Catterall, then head of the futures desk for Shell Trading U.S. agreed to pay $100,000. Bloomberg reported that Catterall and Shell engaged in prearranged trades for oil futures at least five times between November 2003 and March 2004. The CFTC acknowledged that Shell had cooperated in the investigation. According to the Bloomberg story (one on many news reports on the case), a commission spokesman, Dennis Holden, would not comment on how the trading violations came to light.
Participation in price fixing cartels
In September 2006, The European Commission fined Shell $137m for their role in a cartel that fixed the price of bitumen. According to a report published in the Houston Chronicle, "the EU Commission said the company was an instigator, took the leadership in the cartel and was a repeat offender". The report went on to state that "Shell’s fine was increased by 50 percent because of its involvement in previous cartels and another 50 percent for instigating and leading the cartel." A BBC news report revealed that Shell has previously been fined by the EU Commission for price-fixing in other markets (PVC and propylene). An article in The Daily Mail stated that Shell’s fine was increased by lOpc for "obstructing the probe". On 29 November 2006, it was reported that the European Commission was imposing "its second-largest cartel fine against Shell, Dow Chemical, ENI, Unipetrol and Trade-Stomil." The fine was imposed for "fixing prices of synthetic rubber, used mainly in tyre production." According to an article in The Times newspaper, "Shell’s fine, as well as ENI’s, was increased because it was a repeat offender." All three of the featured quotations are from The Times article. According to a BBC News report, also published on 29 November 2006, Royal Dutch Shell Plc was fined 160.8 million euros.