Controversies surrounding Royal Dutch Shell
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Throughout its history Royal Dutch Shell has courted controversy in many of its operations. These have been environmental and health and safety related as well as in respect of its businesses practices and priorities. In recent times Shell’s management has acknowledged many of these controversies and has taken steps to repair damage done both to the affected parties and to its own reputation. Shell's endeavours to restore its reputation were marked by tightened internal controls, a more open commitment to corporate social responsibility and an extensive global communications campaign and other initiatives in the late 1990s early 2000s.
[edit] An Early Critique
Criticism of Shell on environmental and exploitation grounds is nothing new. As early as 1928, the satirical play Öl-Konjunktur (Oil-Economy) by Leo Lania and Felix Gasbarra was staged in Berlin, dealing with a backward Balkan country over which Shell and two other international oil companies are fighting for sole rights to its oil production. The production had music by Kurt Weill, now partly lost, but including the still-extant Muschellied (Mussel-Song), with words by Gasbarra specifically attacking Shell. The famous scallop logo is here changed to a mussel, and reference is made to the firm’s origin in 'an old man selling shells on Margate promenade'. From these beginnings it has grown to ein Naphtha und Benzine Cartel, Shell! Shell! Shell!. After verses about environmental pollution and exploitation of labour, the song climaxes
… da fing das Öl zu brennen an, Von Aserbeidschan bis Tibet. Es stecke die Welt in Brand, Petroleum heisst unser Vaterland. Dafür zerlöchern wir uns das Fell: Shell! Shell! Shell!
(… the oil began to burn from Azerbijan to Tibet, It set the world on fire. The name of our Fatherland is Petroleum, And for the sake of it we’ll drill Each others’ hides full of holes: Shell! Shell! Shell!)
Weill, currently composing The rise and fall of the city of Mahagonny , set the text in his most aggressive political song-style.
[edit] Henri Deterding
Sir Henri Deterding dominated the world of oil in the first three decades of the twentieth century as the head of Royal Dutch Shell - his primary goal was to stabilise the price of oil by restricting competition. Deterding negotiated agreements that discouraged competition and promoted cooperation among the major oil companies. He was at the centre of almost every major decision affecting the global oil industry and the countries that produced, refined, or depended on that oil and was one of the more powerful business leaders of his time. Some critics saw Deterding as a volatile and dictatorial business leader who unscrupulously propped up the price of oil. This was supported by a 1952 U.S. Federal Trade Commission report which confirmed Deterding’s place at the centre of an international plot to control the price of oil.
Deterding was also a Nazi sympathiser. He was accused, as Edgar Ansell Mowrer testifies in his book “Germany Puts the Clock Back”, of putting up a large sum of money for the Nazis on the understanding that success would give Shell a more favoured position in the German oil market.
[edit] Sanctions busting in Rhodesia
In 1965 the British Crown Colony of Rhodesia unilaterally declared independence from Britain which led to the imposition of sanctions by the United Nations. These sanctions included strict controls on oil and petroleum product sales to the rebel colony. In 1978 the "Bingham report" into sanctions busting revealed that Shell’s local offices in southern Africa, along with those of BP, had been breaking the government's oil embargo from the moment it was imposed. This conflicted with a letter to the British Government which had been written by Shell's Chairman Sir Frank McFadzean in June 1976 which said that "... no company in which we [Shell] have an interest is supplying to Rhodesia". The Bingham report revealed that Shipments to Rhodesia had arrived at the old petroleum port of Lourenco Marques (now Maputo), and from there the oil had been shepherded by Shell Mozambique, a U.K.-incorporated firm, into the hands of South African brokers, who sent it north by rail through Mozambique to Rhodesia. Senior executives of Shell were criticised in the report for failing to monitor what local employees were doing.
[edit] Corruption in Italy
In the early 1970s Shell decided to dispose of the heavily loss making business of “Shell Italiana” - its downstream operation in Italy. Assets were sold to the Italian state company Eni in 1973. Subsequent to the sale Shell’s accountants and outside auditors discovered that in the five years prior to the sale to Eni Italian politicians had received “political contributions” totalling around $6 million from Shell Italiana’s local management. These had been recorded in the company’s books as “advertising and publicity” expenses. Shell’s General Manager in Italy, who had operated without authority and who had misrecorded the payments, was dismissed.
[edit] 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.
[edit] Formula Shell
In the post war years Shell was one of the leaders in fuels technology – in particular the development of additive packages designed to enhance the performance of petrol (gasoline) in automobiles. Amongst the new products of the 1950s and 1960s was “Super Shell with ICA” a fuel/additive mix which controlled ignition (ICA stood for Ignition Control Additive). However after the oil price hikes caused by OPEC raising the price of crude oil in the 1970s Shell and other oil companies suspended advertising and marketing programs and “fuels differentiation” (as this strategy was known) ceased. Shell scientists and technicians continued to carry out research into the subject and by the mid 1980s Shell felt able to introduce a new initiative. A fuel/additive package which was claimed to “significantly improve your car’s performance” was launched in the United Kingdom, Europe and elsewhere from 1985 onwards. It was known as “Formula Shell”.
The initial customer response to Formula Shell was very positive and drivers claimed to notice a genuine improvement in their car’s performance. Shell’s sales responded significantly in all markets where the new brand was introduced. However within a few months in some countries reports began to appear of problems with a small number of cars running on Formula Shell. There were reports of damaged engines and even of cars having to be taken off the road because of mechanical defects. One particular example was of a police force in Scotland which suffered damage to many of the cars in their fleet. This was highly publicised in the British media.
Shell’s initial response to these problems was denial. They claimed that the Formula Shell product had been extensively tested and denied that there could be any problem. However as reports began to come in from around the world Shell started to take the matter more seriously and conduct their own laboratory experiments into the problem. Eventually Shell was forced to acknowledge that in a small number of instances with particular cars running on leaded petrol one of the components of the product (known as the “Spark Aider”) could cause problems. Formula Shell was withdrawn in the United Kingdom and some other markets – although the brand continued to be sold (without the Spark Aider) elsewhere. Compensation was paid to those car owners whose cars had been damaged by the product. An internal report criticised Shell’s management for its slow response to the problem, its initial denials that there had been a problem at all and for other aspects of the management of the affair which was seen to have damaged Shells’ reputation for technical excellence.
The problems of Formula Shell were confined to a small number of markets and to a small number of cars in these countries - but the damage to the brand was such that it was completly withdrawn in most of these countries (e.g. the United Kingdom). However Formula Shell continued successfully in many other markets and the brand name still exists today as a automotive lubricants brand [1]
[edit] Explosion at Shell Oil refinery in Norco Louisiana
On 7 May 1988, a major explosion occurred at a Shell Oil refinery in Norco, Louisiana. The New York Times reported six deaths, one person missing and 42 people injured. The blast shattered windows up to 30 miles away and "damage was sustained on both sides of the mile-wide Mississippi river". According to the same report, Norco residents were "fed up over recurring emergencies that had forced them to evacuate their homes eight times in 12 years". An article published by AlterNet in February 2005 concerning the explosion and its consequences said that it “spewed 159 million pounds of toxic chemicals into the air, requiring the evacuation of 4,500 people” and that Shell subsequently “paid out $172 million in damages to some 17,000 claimants”. An article published by The Times-Picayune newspaper on 19 February 2007 reported that a lawyer involved in bringing a federal class action lawsuit against Shell in relation to the explosion was at risk of disbarment for paying a Shell employee $5,000 in 1991 for inside information about what the lawyer alleged to be “misconduct by Shell in preparing its witnesses for depositions”. The lawyer further justified the payment by claiming “genuine belief that paying the Shell insider for information would compensate for Shell's refusal to cooperate."
[edit] Settlement of USA air and emission violations in 2001
On March 21, 2001, the U.S. Environmental Protection Agency and the U.S. Department of Justice announced a settlement committing nine refineries owned by Motiva, Equilon Enterprises, and the Deer Park Refining Limited Partnership to a program to ensure compliance with important provisions of the United States Clean Air Act. The companies agreed to invest $400 million over eight years to reduce emissions of nitrogen oxides, sulphur dioxide and particulate matter. Motiva Enterprises LLC, is a joint venture between Shell and Saudi Refining Inc. Equilon Enterprises is a subsidiary of Shell Oil Co. Shell Oil Products is a partner in Park Refining Limited partnership.
[edit] Settlement of air and emission violations at Louisiana Shell plants
On 14 March 2007, the Louisiana Department of Environmental Quality (DEQ) announced that Shell Chemical Company has settled six years of environmental infringements with a $6.5 million agreement covering charges that “it violated air and other emissions standards between 1999 and 2003”. The settlement includes a $1 million fine which will go into the state's hazardous waste cleanup fund and $5.5 million which will be invested in beneficial environmental projects to reduce flare reduction systems at four Shell Chemical plants. Under the terms of the settlement Shell does not admit any wrongdoing and in mitigation pointed out that many of the violations were self-reported. DEQ Assistant Secretary Harold Leggett was quoted as saying: ‘‘This is an important settlement, not just because both parties have addressed past violations, but because we have also agreed to address the needs of the future.'' The improvements, to be located at the company's Norco plant, are scheduled to be completed by 2014. The agreement also calls for Shell Chemical Company to improve its leak detection and repair program at its plants in Norco, Taft and Geismar and a petroleum refining plant in St. Rose.
[edit] Groundwater contamination in USA
Shell Oil Company (SOC), along with many other defendants, has been sued in the USA by public water suppliers and governmental agencies, alleging responsibility for groundwater contamination caused by releases of gasoline containing oxygenate additives. Most of the lawsuits seek recovery of alleged damages and clean-up costs. Some claim punitive damages.
In October 2006, Shell Oil Co. and a subsidiary company, Equilon Enterprises, agreed to pay $6.5 million in a lawsuit settlement with Riverside County California. The agreement included $3.6 million in civil penalties and ordered Shell and Equilon to stop any future violations of California state Health and Safety laws. The lawsuit alleged 56 state law infringements regarding maintenance of underground storage tanks and handling of hazardous materials and waste. Stephanie Weissman, Riverside County senior deputy district attorney with the office's Environmental Crimes Unit alleged leaks from underground gasoline storage tanks can contaminate groundwater and have long-term negative impact on the environment. According to a report published by the Press-Enterprise newspaper, “The court action stemmed from a discovery in 2003 by the Riverside County Department of Environmental Health Hazardous Materials Division that Equilon had failed to report or fix leaking underground storage tanks at three Coachella Valley gas stations.” The article went on to say that “Violations were later found at two other sites in western Riverside County”. Shell and Equilon, which owns and operates the gas stations, denied any wrongdoing. Equilon president, David Sexton, claimed in a statement that Shell had spent $55 million in the previous nine years to improve underground storage tanks and equipment at its gas stations in California. As part of the settlement, over $1 million is being spent by Equilon for the installation of sensors and locking mechanisms at its stations.
According to information on pages 146 and 147 of Shell’s Annual Report and Form 20-F for year ending December 31, 2006, there were approximately 69 pending lawsuits as of the December 31, 2006 date, asserting claims against SOC and other defendants including other major energy and refining companies. The report states that “In 19 of the lawsuits, plaintiffs allege aggregate compensatory damages of approximately $1.25 billion and aggregate punitive damages of approximately $3.35 billion.” Shell considers the amounts claimed by plaintiffs in the pleadings to be “highly speculative”. For this reason no financial provision has been made for the relevant cases. Shell also says that there are “significant unresolved legal questions”. The report states that monetary damages have not yet been claimed in the other 50 lawsuits.
The 9th U.S. Circuit Court of Appeals ruled on 16 March 2007 that Shell Oil Company and two railroad corporations must pay the costs of cleaning up a toxic waste site near Arvin the Central Valley, in California. The Court confirmed an earlier ruling regarding both the railroad corporations and Shell’s liability, deciding that “The railroads and Shell are jointly and severally liable for the harm at the Arvin site”. A local newspaper, the Central Valley Business Times, reported twenty years of leakage and spread of “Shell-produced agricultural chemicals: the soil fumigants D-D and Nemagon. D-D and Nemagon — members of a class of chemicals called nematocides hazardous materials in violation of several hazardous waste laws”. According to the newspaper report, the U.S. Environmental Protection Agency investigated separately and found evidence of soil and groundwater contamination at an Arvin facility.
[edit] The Vietnam War
Between 1972-1975, the last three years of the Second Indochina War, widely known as the Vietnam War, the oil company Shell Vietnam controlled half of Vietnam’s oil supply. A book authored by Louis Wesseling, the President of Shell Vietnam during that period, revealed that Shell failed to properly control oil shipments which flowed through indirect channels to the `enemy’. According to his book “FUELLING THE WAR: REVEALING AN OIL COMPANY’S ROLE IN VIETNAM”, Shell knowingly employed as a manager a notorious former senior Police official with a “fearsome and well-deserved reputation” who “had already shown his inclination to settle security matters by military action with little compunction about killing, innocents along with suspects”. Wesseling served as CEO of Shell companies in South America and the Middle East and collaborated on drafting the Shell Business Principles.
[edit] Nigeria
- See also: Petroleum in 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.[1] 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.
In February 2002, a United States District Judge ruled that a case brought against Royal Dutch Shell by close relatives of Ken Saro-Wiwa could proceed in the United States District Court for the Southern District of New York under the Alien Tort Claims Act, the Torture Victim Protection Act and RICO (Racketeer Influenced and Corrupt Organizations) Act.
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".[2] 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.
[edit] Darfur region of Sudan
The Board of Trustees of Amherst College located in Amherst, Massachusetts, passed a resolution on 14 January 2006 to divest all investments in multinational companies “identified as having direct business ties to the Sudanese government or companies whose business activities are in direct support of these companies and the activities of the government”. The divestment action was taken based on alleged human atrocities "wholly inconsistent with the moral and ethical values of Amherst College" and alleged evidence of genocide against the people of the Darfur region allegedly committed by the Sudanese government. Royal Dutch Shell Plc was identified as one of the multinationals banned for investment purposes because of its business operations in Sudan.
[edit] Exchange Control speculation in Japan
Showa Shell Sekiyu KK is a Joint Venture downstream oil company in Japan in which Shell had a 50% share (now 40%) and which markets under the Shell brand. In 1993 the company sustained losses of 165 billion yen (approx US$1.4billion) from unauthorised forward currency transactions. The company's treasury department, expecting the U.S. dollar to rise against the yen, bought forward dollars on futures markets at around 145 yen. Unfortunately, the dollar decreased to 120 yen in 1993 causing huge foreign exchange losses for the firm. The scandal prompted Shell to review its internal controls, especially in Joint Ventures, and led to the dismissal and/or early retirement of senior local staff.
[edit] Brazil
In 1951, Shell Chemicals of Brazil built a storage tank and terminal in its chemical plant in Paulinia, 120 kilometres north-west of São Paulo, beginning operations that last to the present. A related pesticide plant was also founded, but moved out during a regional de-industrialisation in the 1970s. While both plants' operations were in general accordance with local and international standards for disposals of waste, these standards were later found to be lacking. Furthermore, among the pesticides produced were "drins" -- endrin, dieldrin and aldrin, pesticides later discontinued due to their toxic, persistent and bioaccumulative nature. In the early 1990s, Greenpeace and the Union of Workers in the Mining and Petroleum sector (Sinpetrol) first raised charges that the area's soil, air and water were contaminated with heavy metals (most notably, lead) and drins.[2]
In February 2001, Shell admitted responsibility according to a Greenpeace report, for the contamination by the organochlorin pesticides. The report indicates that drins were found in the groundwater and soil under the farms located between the plant and the Atibaia River, a tributary of the Piracicaba River, providing water to cities in the region. Shell still denies responsibility for the lead contamination, pointing out that the contamination is organic lead, while theirs was rendered inorganic before disposal. According to the report, while Shell accepted responsibility for the pollution, it claimed that it has not been established whether the pollution threatens the health of the local population. Shell conducted blood tests among local residents and concluded that the levels of toxins present in their blood were not harmful. In June 2002, Sao Paulo state's environmental watchdog Cetesb, fined Shell “for toxic pesticide pollution”. According to a March 2003 article in Ode, an international magazine, a Shell official stated: “If there is proof that our products have caused harm then we will immediately take responsibility for it. That is our global policy”. According to the same article, many people were allegedly sick with ailments including cancerous growths, intestinal disorders, lung diseases and children with neurological defects.
According to Jose Antonio Puppim de Oliveira, a professor at the Brazilian School of Public and Business Administration, Shell's stance toward the case has been: "The company wants to treat the case purely from the scientific point of view by using the best methods and techniques of risk assessment and risk management. They see no point in spending huge amounts of resources to clean up the area completely because the risk is overcome if no one drinks the subterranean water. Moreover, Shell claims other companies may also be responsible and the problem quite possibly may continue into the future. The cleanup will not improve the quality of life of Vila Carioca or São Paulo's inhabitants since underground contamination and other environmental problems such as air and water pollution are common in the city. Shell argues that it prefers to use its resources to contribute to the society in a more sensible way with other social and environmental initiatives."[3]
In January 2005, Shell was reportedly ordered by a judge to stop dumping chemical wastes and to decontaminate drinking water sources[citation needed]. The company was additionally fined four times by the state environmental agency between 1993 and 2003. The report by Friends of the Earth claims health problems for employees and those living nearby, who were allegedly found to have high concentrations of heavy metals and pesticides in their blood. Neither Shell nor the state environmental agency (CETESB) recognised the test as valid, claiming that the methodology was flawed.[4]
[edit] Brent Spar
- See also: 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.[3]
[edit] Brent Bravo
Brent Bravo is an offshore production platform operated in the North Sea by Shell UK Exploration and Production (Shell Expro). On 11 September 2003 two workers on the platform, Sean McCue and Keith Moncrieff, were inspecting pipework when they were overcome by a large release of gas and died. On 27 April 2005, following a Health and Safety Executive (HSE) investigation, Shell was fined £900,000 after pleading guilty to offenses under health and safety legislation.[5]. The HSE said after the case that “…Shell … 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 [and] 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”.
On 1 January 2005 another worker, electrician Graeme Burns, died while carrying out maintenance work on Brent Bravo [6]. On 31 May 2005, a water condensate tank exploded at a NAM gas production facility near Warffum in The Netherlands. The two victims were both contractors’. NAM, a Shell/Esso joint venture, operating in The Netherlands issued a press statement on 31 May 2005.
[edit] 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.
[edit] Malaysia
In September 2004, 399 ex-employees of Shell won a lawsuit at the Miri High Court in Malaysia concerning the administration by the defendant Shell Group companies of Shell employee retirement funds. The Shell companies in question - Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd - were ordered to pay nearly RM100 million to the plaintiffs, 399 former employees known as Project Team A, who filed their suit on 29 November 2002 alleging an unlawful deduction from their retirement funds. According to a report of the hearing, counsel for the plaintiffs objected to an application by Shell for a stay on the grounds that “a majority of the plaintiffs are well over the age of 60 and in weak and declining health”. A story in the New Straits Times published on 7 October 2004 reported in relation to the former Shell employees, that “Some have died. Others are losing their memory and many are ailing.” According to another news report, the suit was said to be the first "in the legal history of Malaysia involving the largest number of ex-employees suing their former employers and involving such a big claim". The defendants filed an appeal against the decision on the alleged grounds that the plaintiffs had not filed their civil action within a required 6 year period. The Malaysian Court of Appeal decided in October 2005 that it has jurisdiction to hear the appeal. The appeal decision is pending.
[edit] Port Arthur, Texas
In 1901, Port Arthur, Texas was fortunate in being the nearest port to the first oil gusher in the state of Texas. Motiva Enterprises LLC, a US company jointly owned by Shell and the government of Saudi Arabia, own and operate an oil refinery in Port Arthur which was originally founded by the oil company Texaco in 1903. The refinery has been the subject of an environmental campaign led by Hilton Kelley, who together with 1,200 fellow residents of Port Arthur, has launched a class action lawsuit against Shell alleging breach of environmental human rights. In a report in The Guardian newspaper published in the UK on 24 June 2004, Kelley claimed “the Shell refinery was emitting 200-300 times the allowed emissions of chemicals - many of them carcinogenic”. He was also quoted as alleging that "children suffered from asthma and cancerous tumours while women, including members of his family, had had their uterus and ovaries removed". According to a BBC TV News programme in the UK, “Newsnight”, broadcast on 28 October 2004, a study in the year 2000 found that residents “have high levels of have levels of respiratory disease and immune-system problems way above those of a similar control group sited 60 miles away.” Newsnight also reported that “when a federal air quality van toured the area in January 2003, it found hot spots of cancer-causing and toxic chemicals”. However, the origin of the pollution is unclear because four other oil facilities operate in the town.
[edit] Oil Refinery in Durban
The Sapref, oil refinery in Durban, the largest in South Africa (172,000 barrels per day) , is jointly owned by Shell and BP, and has been accused by protesters of having a "dismal pollution record which has claimed the lives of many residents" [7]. Sapref themselves admitted in writing to residents, that the plant did not have a "perfect environmental and social performance record". The main accusation is that Shell/BP applied double standards allowing the South African plant to be far lest circumspect on environmental controls than in its refineries elsewhere in the world. [8]. Critics of Shell pointed to the company’s “Statement of General Business Principles” [9] which stated: “We aim to be good neighbors by continuously improving the ways in which we contribute directly or indirectly to the general well-being of the communities in which we work.”. Protest groups such as Greenpeace and Friends of the Earth said that Shell fell far short of this ambition at its Joint Venture refinery in Durban.
[edit] Ireland
- See also: Shell To Sea
In Ireland Shell has been criticised for its plans to pipe unrefined gas from the Corrib Gas Field onshore, through private property, en route to a processing plant in northern County Mayo. The plans were originally made by Enterprise Oil and inherited by Shell when they acquired this company in 2002. 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 residents, "Shell To Sea", whose main aim is 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 who support the campaign.
The opposition to Shell's plans have been for a number of reasons:
- Questions over the safety of the proposed pipeline - protestors have called for the project to be taken out to sea, instead of running a pipeline across land close to residential areas.
- Shell's attempts to force the project to go ahead without sufficient consultation with local residents.
- The Irish government's decision to allow the consortium of companies led by Shell to keep all of the profits from the development of the very large Corrib Gas Field.
Despite the protests Shell - aided by large numbers of Gardaí (police) from throughout Ireland - attempted to restart work at the onshore terminal site at Bellanaboy on 3 October 2006. Since then contractors employed by Shell have been escorted to the site by a large force of police. At a demonstration on November 10th 2006 the police forced a group of protesters off the road by beating them with batons, causing many injuries.
Shell has argued that the development is welcomed by most of the local population, that all planning regulations are being followed and that it has been responsive to local concerns. See [10]
[edit] 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 recategorisation 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 standardised 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 Watts[11], 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." [12]
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 pounds (UK) on The “Shell” Transport and Trading Company P.l.c. and The Royal Dutch Petroleum Company NV. The FSA considered that: "Shell announced false or misleading proved reserves and reserves replacement ratios to the market throughout the period 1998 to 2003 inclusive." The FSA also considered that Shell’s misconduct amounted to “market abuse” on the basis that the market “was likely to have been, given a false or misleading impression as to the price or value of UK listed Shell shares…”(p11: para60) The FSA further considered that Shell’s actions were particularly serious, meriting a substantial penalty. However, the level of penalty reflected the high degree of cooperation which Shell had shown during the FSA investigation. On the same date, the SEC announced a fine of $70 million USD on Shell making a combined fine of approximately $150 million USD by the UK and U.S. financial regulators.
In July 2006 Shell confirmed [13] 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 shares[14].
A section of page 147 of Shell’s Annual Report and Form 20-F for year ending December 31, 2006, published in March 2007 deals with the "Recategorisation of hydrocarbon reserves". It relates to the consolidated shareholder class action pending in the US District Court for New Jersey. The lead plaintiffs are the Pennsylvania State Employees’ Retirement System and the Pennsylvania Public School Employees’ Retirement System. The remaining defendants in the action are Royal Dutch Petroleum Company (merged into Shell Petroleum N.V.), The “Shell” Transport and Trading Company, plc, former Shell directors, Sir Philip Watts and Judith Boynton, and Shell auditors, PricewaterhouseCoopers LLP, KPMG Accountants N.V., and KPMG International. Related class actions filed on 6 January 2006 by Dutch pension funds, and German and Luxembourg institutional shareholders, are consolidated with the existing class action for pre-trial purposes. The preliminary stage of the litigation is completed. An amended complaint has been filed and answered by the defendants. Discovery has commenced. According to the same Shell Annual Report, the Court will hold hearings in June 2007 on various legal issues including plaintiffs’ motion for class certification and on whether federal securities laws apply to the claims of non-US potential class members who purchased Shell’s securities on foreign markets. The court will also decide various summary judgement motions being filed by Shell.
[edit] 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 was 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.
The originally negotiated contract was a “production sharing agreement” which gave the Russian state revenues only after Shell and the other partner companies had recouped their costs and made a substantial return on their investments. Thus Shell was substantially protected from cost overruns which would lead to lower and later income for Russia. This was the main reason for the Russians to insist on a new deal, involving Gazprom and for the charge of greed being levelled at Shell by many independent observers of the project.[15]
The environmental and social concerns came to a head at the end of November 2005 when the Chief Executive of WWF 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.
The spiraling project costs and other difficulties have continued to undermine confidence in Shell's reputation for good project management. 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.
In late 2006, Shell and its partners in Sakhalin Energy reached an agreement with Gazprom for the Kremlin controlled company to become the majority shareholder in the venture. This was described as a "Capitulation" by The Economist. [16]. Russian President Putin attended the signing ceremony in Moscow and indicated that environmental issues had been resolved. In a news report on 23 December 2006, The Sunday Telegraph claimed that Shell had been bullied into the deal by the Russian authorities.
[edit] The Shell Foundation
On 28 September 2006, an article published in The Guardian newspaper alleged that "An attempt by Shell to portray itself as a model of corporate social responsibility was undermined last night after Whitehall documents showed its charitable arm discussing a key commercial project with a British government minister." The article entitled "Campaigners attack Shell’s charity arm over Sakhalin talks" related to The Shell Foundation. The Charity Commission subsequently conducted an inquiry and according to an article published in The Guardian on 17 October 2006, concluded that 'The Shell Foundation “has fallen short of the good governance and decision-making that we expect from large charities”.
[edit] Bonus schemes
In 2004 Wall Street regulators investigated [17]whether members of Shell’s management were encouraged by executive bonus schemes to over-state the oil giant’s reserves. It was reported that some 5 per cent of the performance score-card of about 200 executives in Shell’s exploration and production unit was tied to the company’s reserves replacement ratio. Shell's remuneration policy changed significantly between 1990 and 2005 with senior executives in all functions being substantially rewarded for achieving short-term performance related targets. When Shell's Sakhalin deal unravelled in 2006 there was comment that many of the senior managers who negotiated the deal in the first place had received bonuses based on the earnings expectations of that deal as they then applied. Although much less favourable terms were forced on Shell in the 2006 renegotiations it is not believed that any return of personal bonuses from these executives were requested.
[edit] Domain name oversight
Due to an oversight, Shell failed to register the top level internet domain name for the new company, Royaldutchshellplc.com. In May 2005 it launched proceedings to request the transfer of the domain name, along with two other domain names relating to Shell including royaldutchshellgroup.com, from their holder, Alfred Donovan, a long-standing activist against Shell. Shell lost the case.
[edit] Tell Shell Forum
In 1999 Shell was the first multinational to set up an online discussion facility for its stakeholders and the public to engage in open debate about its activities – known as the "Tell Shell Forum". Shell said at the time “We genuinely do welcome all comments, positive and negative... this website is in itself evidence that we are interested in seeking your views and willing to listen and respond.” Shell was criticised for withdrawing the forum in late 2005. A replacement to the forum was promised, but has not appeared. The discussions on the Shell Forum have been archived and are available. [18]
[edit] 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.
[edit] 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.
[edit] Use of charity fund raising song as internal motivational anthem
Shell attracted further controversy in 2006 [19] when they adopted the music, and some of the lyrics, of the song We are the World (renamed “Growing and Winning” for an internal motivational anthem. Intended to inspire staff the words included such phrases as “Now we’re on a journey, to streamline the way we work, and build a global enterprise” and “…we have moved on, growing day by day sharing strengths, we practice what is best - we are all a part of Shell’s global family”
[edit] Iran
Shell courted controversy in January 2007 when they announced that they had signed a deal to help Iran develop a major gas field in defiance of pressure from the United States. [20]
Shell has been active in Iran for many years. Shell Iran has an office in Tehran [21] from which various downstream businesses are managed and which is also the centre for new exploration and production and other projects. In 1999 Shell signed an agreement with the National Iranian Oil Company to redevelop the Soroosh and Nowrooz offshore oil fields and Shell executives made it clear at the time of the signing how much the company valued its relationship with Iran [22]. Drilling commenced in 2001. Whilst American oil companies were prohibited by sanctions from working in Iran Shell, along with some other European companies (e.g. Repsol), continued to operate and pursue new opportunities in the country. This was in contrast with BP who decided not to be involved at a time when the Iranian regime was criticised for its anti-western stance, its nuclear weapons programme, its support for the insurgencies in Palestine and Iraq and its institutionalised anti-Israeli and holocaust denial rhetoric.
[edit] Nicaragua
In 2002, a $490 million judgement was made in favour of 466 plaintiffs by a Nicaraguan court jointly against Shell Oil Company (SOC) and three other named defendants (not affiliated with SOC), for alleged injuries resulting from alleged exposure to dibromochloropropane (DBCP), a pesticide manufactured by SOC. According to information on page 147 of Shell’s Annual Report and Form 20-F for year ending December 31, 2006, the pesticide was manufactured prior to 1978 and was not shipped or sold by SOC to any party in Nicaragua. The report states on page 147 that “As of December 31, 2006, nine additional Nicaraguan judgements that have been entered in the collective amount of approximately $1.2 billion in favour of 1,737 plaintiffs jointly against Shell Chemical Company and three other named defendants...” Shell claims that the Nicaraguan DBCP judgements are unenforceable in a US court.
[edit] External Links
- Shell Oiled Wildlife Anti-Shell Site
- Royaldutchshellplc.com Another Anti-Shell Site
