By Terry Messenger
BBC Money Programme
Investors found they could not trust in Shell after all.
Peter Montagnon, head of investment affairs at the Association of British Insurers (ABI), is an unflappable man.
But on 9 January this year, he was shocked. In his world, the unthinkable had happened.
In the City of London, Royal Dutch/Shell was seen as the safest of havens for money invested by insurance companies and pension funds - which typically belong to the ABI.
They invest money belonging to millions of ordinary people with small savings, pension plans and insurance policies.
If you needed a safe, steady return on your money, you could, as the slogan declares, always "be sure of Shell".
But on 9 January the oil giant stunned the financial world by confessing to a 20% exaggeration of its proven oil reserves.
"I was shocked because our members were shocked and I think everybody would be shocked in that condition," said Mr Montagnon. "I rarely remember a time when there was so much anger."
He had good reason. Following the admission, Shell's share price crashed and £3bn was wiped off the value of people's investments in Shell.
This was not one of those complicated financial scams without relevance to ordinary people. Quite simply, the more reserves an oil company has, the more valuable it is. And up goes the share price.
When Shell admitted to misleading investors, down went the share price. And, as Mr Montagnon explained, "most people will have a stake in this, if they've got a pension, because Shell is such a large company".
"And if you've got a pension pot, the chances are some of it is in Shell, so when you have an announcement like this and the price plunges, then the value of your pension pot, of everybody's pension pot, is reduced accordingly," he said.
Do the right thing
American lawyers seeking compensation for investors argued that millions of people over-paid for their Shell shares.
Sir Philip stepped down over the affair.
So who was responsible? The chairman of the company on 9 January was Sir Philip Watts. At first he insisted that he had only found out about the unproven reserves tally at the end of 2003.
Sir Philip told a presentation to investors on 5 February that "as soon as it came to my attention, it was a matter of all hands on deck, and I remember writing down the words 'get the facts and do the right thing'".
Play for time
But very grave doubt was soon cast on that interpretation of events. In March, the Wall Street Journal started reporting that Sir Philip had been warned of the possibility of the false tally from way back in February 2002.
Sir Philip's deputy was a man called Walter van de Vijver. At 6 foot 7 inches tall, he was an imposing figure, known in the company as "The Tall Angry Dutchman".
As internal correspondence between the two men was made public, the reason for his anger became clear. He had been warning Sir Philip repeatedly that Shell was overstating its proven reserves, to little avail.
Mr van de Vijver was head of exploration and production. It was his job to make Shell's oil reserve tally look good. Sir Philip ordered him not to admit the exaggeration but instead to "play for time", according to a document later released by Shell itself.
On 9 November 2003, Mr Van de Vijver's warnings culminated in a furious e-mail. He told Sir Philip: "I am becoming sick and tired of lying about the extent of our reserves."
Oil companies are required to list their reserves with the US financial markets regulator Securities and Exchange Commission (SEC) in the United States. The SEC regulates share trading to ensure that investors are not defrauded.
Shell was telling the SEC that it had nearly 20 billion barrels of oil and gas reserves that were proven and commercially viable to exploit - when in fact the figure was nearer 16 billion. Sir Philip Watts resigned in disgrace.
An example of the overstatement was to be found at Barrow Island off the west coast of Australia. Here Shell booked half a billion barrels of oil equivalent at the Gorgon gas field lying in the sea near Barrow Island.
But Barrow Island is a protected nature reserve and haven for several species of unique animals, living there and nowhere else in the world.
To exploit the gas field, Shell and its partners in the venture, Exxon Mobil and Chevron Texaco, would have to build a huge gas liquifying plant on Barrow Island.
Unsurprisingly, conservationists kicked up a fuss about the environmental threat and lobbied the Australian government to block the plan.
"There are some 24 species that only exist on the island," said Chris Tallentire, director of the Western Australia Conservation Council, explained.
"Amongst them you've got animals such as the spectacled hare wallaby. And we've also got a magnificent Perentie, which is the second largest lizard in the world.
"Conservationists across Australia are going to be doing all we can to make sure that the proposal doesn't go ahead.
"It would be quite wrong for any company to say that the gas reserves in the Gorgon field are bookable or in the pocket."
Exxon Mobil and Chevron Texaco agreed with Mr Tallentire and did not book their share of the gas field with the SEC. Only Shell listed the Gorgon reserves.
According to Lynn Turner, former chief accountant at the SEC, the regulatory body noticed inconsistencies in the oil company's findings and began inquiries.
With the SEC looking into the affair and Van de Vijver's warnings growing louder and more urgent, Shell finally came clean in January and wiped 20% off its reserves.
There followed investigations by the SEC - and the US Department of Justice. With the department involved, the possibility of criminal prosecution still looms. The consequences for Sir Philip - and even Mr van de Vijver - may be very serious.
"If they signed certification that these disclosures were accurate, when in fact they knew they weren't, that's fraud in the United States and the Justice Department will have a basis for criminally prosecuting the executives, and if they deem necessary sending them to jail," Mr Turner warned.
Money Programme - Shell Shock was broadcast on BBC2 on Thursday 15 July at 2150.