The Times: Second Shell reserves shock sparks industry-wide inquiry
By Carl Mortished, International Business Editor, and James Doran
March 19, 2004
SECURITIES regulators in the US have launched an investigation into reserve reporting by major oil companies after Royal Dutch/Shell surprised the stock market yesterday with a 470-million barrel writedown of its proven oil and gas reserves, the second cut in two months.
A senior source at the US Securities and Exchange Commission (SEC), the regulator,said: “We are definitely looking into the whole oil and gas sector now.”
The Times has learnt that the SEC has specifically begun a preliminary inquiry into oil and gas reserve reporting at Norsk Hydro, the operator of Ormen Lange, a huge Norwegian gasfield, which was at the heart of yesterday’s reserves downgrade at Shell. Other Ormen Lange investors include BP, ExxonMobil, Statoil and the Norwegian state.
There is no suggestion, however, that Norsk Hydro has committed any wrongdoing or that its reserves estimates are incorrectly recorded.
The SEC source said the watchdog would investigate Norsk Hydro because of its close association with Shell and because the company has a listing on the New York Stock Exchange. “That would be justification enough for us to begin an investigation into them),” the source said.
Internal investigations by Shell into the Norwegian gasfield led it to cancel the proposed booking of 256 million Ormen Lange barrels and instead include just 90 million barrels for its 2003 filing.
Anxiety over the status of Ormen Lange caused Shell to review 40 per cent of its reserve base, which led to a 250- million-barrel reduction in reserves booked for 2002 and a 220-million-barrel cut for 2003.
Shell’s decision to book only a fifth of its entitlement to reserves at Ormen Lange puts the spotlight on BP and Norsk Hydro, both of which are required to file reserve statements to the SEC. Norsk, which owns 18 per cent of the gasfield, said it had booked 336 million barrels, some 80 per cent of its entitlement to gas recoverable from the field.
BP declined to comment yesterday, but its 2003 annual report reveals that it added some 210 million barrels to gas reserves last year, most of which is believed to be Ormen Lange. That would represent some 80 per cent of its entitlement to gas in the field.
However, Statoil, the privatised Norwegian state oil company, said it had booked just 20 per cent of its Ormen Lange interest, taking a similar approach to Shell. ExxonMobil said it had booked gas from Ormen Lange but would not disclose how much.
Shell Transport shares lost 11p to 361p following the revelations. At a tense media and investor conference yesterday, Jeroen van der Veer, who is just weeks into the job as chairman of Shell’s management committee, denied that he had long known of the misreporting of Shell’s oil and gas reserves, an allegation that has surfaced in American newspapers. The second reserves cut has forced Shell to delay publication of its annual report, which was due today, until late May. The annual meeting has been pushed back by two months to June 28.
Shell said it would pay a second interim dividend on May 6 to its shareholders instead of the final dividend.