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SHELL executives were encouraged to inflate the level of oil reserves in Nigeria by the prospect of huge bonuses, the Financial Mail on Sunday has established.
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The revelation will fuel the growing row over how the company has accounted for some of its oil discoveries - a scandal that has already damaged its reputation and last week claimed the scalps of its chairman and its head of exploration.
More heads could roll as the result of investigations into the Nigerian operation by the company and America's Securities & Exchange Commission.
According to sources close to Shell in Nigeria, the group's reporting systems there provided an incentive for overstating reserves. The Nigerian government offered tax breaks to companies that declared they had uncovered oil reserves - the higher the reserves, the higher the tax break.
This flattered results from the Nigerian operation - called the Shell Petroleum Development Company (SPDC) - and led to bigger rewards for local executives. It is understood that between 1996 and 1999, the bonuses at SPDC soared.
Concerns over Shell's reserves were highlighted in January when it admitted overstating proven oil and gas reserves by 3.9bn barrels. About 60% of this is thought to relate to Nigeria.
That revelation has led to a wider inquiry at the company into how oil reserves were recognised in the accounts and whether executives benefited from overstating the figures. Attention is focused on Shell's operation in Nigeria, an impoverished country notorious for its widespread corruption.
Shell's lawyers have taken away boxes of documents, computer records and even computer hard disks from company offices in London and Lagos.
It is thought that early concerns from the investigation led to the ousting of chairman Sir Philip Watts and Walter van de Vijver, head of exploration and production, last week. The full report is expected in two weeks.
Watts was managing director of Shell's Nigerian operation between 1991 and 1994 before becoming global head of exploration and production in the late Nineties.
He was in charge of reserve statements throughout the company before being appointed chairman in 2001.
Executives in Nigeria have already been questioned as part of an internal investigation, but so far no disciplinary action has been taken.
At the same time, Financial Mail has discovered that Shell, which has tried to make a virtue of its social responsibility in Nigeria, in fact slashed its spending on community projects there by more than 50% last year.
The latest revelations are set to tarnish Shell's reputation for fair dealing in Nigeria, where the company has been hammered over its environmental and human rights record.
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