Shell to pay £50m damages in US over reserves scandal

Shell moved a step closer to putting last year's reserves reporting scandal behind it by agreeing to pay $90m (£50m) in damages yesterday to a group of US employee shareholders who had brought a class action lawsuit against the oil giant.

The settlement follows last week's news that the US Justice Department has decided not to take any criminal action against Shell over the affair, which resulted in it cutting its proven reserves by a quarter and firing three top executives, including the chairman Sir Philip Watts.

In addition to paying the $90m, Shell has agreed to bear up to $1m of the plaintiffs' legal costs. The company's insurance policies will cover $25m of the $90m payout. The affected shareholders invested in Shell through an employee savings plan.

The news in January last year that Shell had misreported nearly 4 billion barrels of oil as proven sent its share price reeling, wiping billions of pounds from the company's market valuation. It also prompted a series of regulatory investigations.

Shell settled some time ago with the two main financial regulators on either side of the Atlantic, paying a fine of $120m to the US Securities and Exchange Commission and one of £17m to the UK's Financial Services Authority. But there are still a further two shareholder class action suits pending in the US, while the Dutch financial markets regulator, the ASM, and the pan-European stock exchange Euronext are continuing to investigate Shell.

In addition, Sir Philip's personal role in the affair is still being investigated by the FSA. Sir Philip, who received a pay-off of more than £1m when he left Shell, has responded by taking the regulator to the Financial and Services Markets Tribunal. The hearing is scheduled to take place this month.

The reserves reporting scandal prompted a root-and-branch review of the company's corporate structure which resulted in the decision, approved by shareholders last month, to unify Shell's UK and Dutch arms into a single board, stock market listing and chief executive.