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Daily Telegraph: All Shell proves is that others do it so much better

Edited by Neil Collins
(Filed: 10/01/2004) 

Senior executives of Shell, the world's third-largest oil company, have never been exactly household names; indeed, the company is as close to a Civil Service as it's possible to get in the private sector, and has a reputation of being almost as exciting.

Yesterday, though, it provided excitement that its shareholders would rather have done without. Indeed, it is all too exciting by half for Sir Philip Watts, the top UK executive. He was so busy worrying about the full-year results that he left his investor relations sidekick to try to clear up the mess left by the admission that Shell has much less oil in its reserves than it thought. 

The jargon of the industry is necessarily as slippery as the product, since you only know for sure that your reserves estimate is right when the field runs dry. 

Even so, cutting a fifth off the "proven" total was enough to cut a twelfth off the market value, and confirm a thoroughly miserable year. It's not encouraging for Sir Philip, who was head of Upstream for most of the time when the now questionable reserves were "proved". Now we learn that Shell's definition was somewhat looser than that demanded by the US financial watchdog. 

So how did Shell fail to spot the non-black hole? And without the SEC's tighter rules, would it have continued to overvalue the reserves it couldn't exploit? Sir Phil's homework ahead of the full-year results should mean at least that the fund managers who are meeting him over the coming weeks can expect a fuller explanation. 

The goal of every oil major must be to try to replace each year's sales, whether by acquisition or exploration, and both BP and Exxon have succeeded in doing this. For the past three years, Shell has failed. Its lack of experience in big takeovers may have contributed to the expensive takeover of Enterprise Oil. 

Neither the world nor Shell is running out of oil but if this trend continues, Sir Philip may well find himself running out of time until someone else is asked to change it.

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