The Daily Telegraph: Shell cuts reserves by another 470m barrels
By Christopher Hope, Business Correspondent (Filed: 19/03/2004)
Shell has ordered a second review of its proven oil and gas reserves after admitting that it overestimated the revised figure it issued only 10 weeks ago.
The Anglo-Dutch business also said that it was now under investigation for "potential insider trading" by Dutch stock market regulators.
Shell is already facing investigations from the Securities and Exchange Commission in New York, and the Financial Services Authority in London.
Shell's problems stem from January 9 when it admitted overstating the level of reserves it could be sure of extracting, by 20pc or 3.9 billion barrels.
That announcement resulted in the resignations of its chairman and head of exploration and production, after Shell's board lost confidence in them.
Yesterday Shell said it had overstated its estimates by a further 470m barrels, cutting earnings by $20m.
Some 250m barrels were wrongly included as proven in 2002, swelling the overstatement at the end of 2002 from 3.9 billion barrels to 4.15 billion barrels.
A further 220m barrels have now been taken off Shell's 2003 proven reserves estimate.
The problems largely related to the Ormen Lange field in Norway where Shell had only used seismic data to interpret whether or not reserves were there.
SEC rules state that, without further corroboration, such reserves cannot be booked as "proved".
Malcolm Brinded, head of exploration and production, said Norsk-Hydro, one of its partners operating on the field, had booked more reserves than Shell.
But he said: "It is an embarrassment. We can and should have done better. I am determined that E&P can never again stumble in such a manner."
Mr Brinded said that so far 40pc of Shell's reserves have been rechecked with help from a 30-strong team of specialist consultants.
The remaining 60pc of the assets will be checked over the next six weeks. He added: "If this happened on Ormen Lange, I want to be sure that we won't have any more problems on other areas before we close."
Shell said none of the managing directors will receive a bonus for work in 2003.
Jeroen van der Veer, the new chairman, insisted yesterday that they did not know about the level of unproven reserves last year. Mr Van der Veer said he saw no link with the reserves problem and a need to change Shell's unwieldy corporate structure.
Nevertheless, any changes to the dual structure, which could see Shell run on a unitary basis, will be put forward by the end of the year.
Under a series of internal governance changes, Shell's E&P arm will be strengthened by an influx of new staff.
Every member of the six-strong committee of managing directors will sign off the reserves statement.
Mr Van der Veer said: "We will make sure that we never drop the ball again."
Shell's shares in London closed down 11 at 361p. Shell's annual report, due to be published today, will now come out in late May.
Shell's annual general meetings have been pushed back by two months until June 28. Shell said its annual dividend payments would not be affected.