Over 15 months after opening a criminal investigation into Royal Dutch/Shell Group‘s overstatement of oil and gas reserves, federal prosecutors announced Wednesday that they will not charge the company in the continuing criminal probe. Here are previous posts over the past year and a half in regard to the reserve estimate mess and related problems that Shell and other energy companies have been confronting as a result of the government’s investigation.
Learning from the Department of Justice’s dubious decision to put Big Five accounting giant Arthur Andersen out of business through a misguided criminal prosecution, the Department of Justice observed as follows in its statement yesterday:

Because Shell has cooperated fully with the government’s investigation, has implemented substantial remedial efforts to enhance its reserves reporting and compliance, and has paid a $120 million civil penalty to the [Securities and Exchange Commission], the public interest has been sufficiently vindicated. Moreover, criminal prosecution would likely have a severe and unintended disproportionate economic impact upon thousands of innocent Shell employees.

However, just to make sure that no one should jump to the conclusion that the DOJ is backing off its questionable policy of prosecuting agency costs, David Kelley, the U.S. Attorney for the Southern District of New York, confirmed in an interview yesterday that the role of individuals in the energy reserve accounting scandal at Shell is still being investigated.
In 2004, Shell reported it has misstated for several prior years its oil and gas reserves, which are a key market gauge of the long-range health of an exploration and production company. Subsequently, Shell’s audit committee generated a report that blamed senior executives for ignoring warnings from Shell employees regarding the accounting of the reserves. As a result, Shell fired the chairman of its committee of managing directors and the chief executive of its exploration-and-production unit, and removed about 23% of the barrels of oil equivalent reserves from its books (about 4.5 billion barrels). Shell settled with the SEC and British regulators over the matter last year.