THE WALL STREET JOURNAL: Calpers Pressures Oil Companies For Independent Reserves Audits: “Shell, in response to its energy-accounting scandal, now relies on outside contractors to help review its tally, though it hasn't committed to a full-blown external reserves audit.” (ShellNews.net) 9 Nov 04
By CHIP CUMMINS
Staff Reporter of THE WALL STREET JOURNAL
November 9, 2004; Page A6
One of the most influential U.S. institutional investors is pushing major oil companies to subject their energy-reserve estimates to independent audits, boosting pressure on the global oil industry to improve the transparency of its reserves accounting.
The call by the California Public Employees' Retirement System, the largest U.S. public pension fund, comes in the wake of major reserves-accounting controversies at several large oil companies this year, including Royal Dutch/Shell Group and El Paso Corp. In the wake of these disclosures, the Securities and Exchange Commission has weighed whether auditors should be required to provide more oversight of reserves estimates, a step that large oil companies have resisted.
In a joint statement expected to be released today, Calpers and New York-based Knight Vinke Asset Management, a fund that campaigns for improved corporate governance, praised Shell for a sweeping corporate restructuring unveiled late last month in response to its reserves overstatements. Shell's parent companies, Royal Dutch Petroleum Co., of The Hague, and Shell Transport & Trading Co., of London, last month agreed to merge. But fund executives also called for Shell and others to bring in independent auditors to examine their reserve numbers.
"If Shell agrees to an external audit of its reserves, this would strongly encourage others in the industry to do likewise and would help to eradicate inconsistencies in the application of SEC standards...that have undermined the market's confidence in the sector," said Eric Knight, managing director of Knight Vinke, in the statement. Knight Vinke coordinated a public-relations campaign with Calpers this year calling for changes at Shell .
Reserves are the estimate of oil and natural gas an energy company has in the ground that it is reasonably certain to pump and sell. The SEC requires so-called proved reserves to be reported each year as supplemental information to a company's financial statements.
A handful of independent petroleum consultants are often used by smaller oil companies to provide outside assurances that reported reserve tallies are accurate. Larger oil companies typically have shied away from using them extensively, however, preferring to rely on in-house expertise to make the complicated assumptions about geology and economics that go into the estimates.
Shell, in response to its energy-accounting scandal, now relies on outside contractors to help review its tally, though it hasn't committed to a full-blown external reserves audit. BP PLC executives have said they support moves to provide consistent, industrywide standards for reserve reporting, but the London-based giant has stopped short of calling for outside auditing. Exxon Mobil Corp. has opposed such a move.A spokeswoman for Exxon, of Irving, Texas, said Exxon doesn't "understand what value would be added" by a review by outsiders, who may not have the same technical qualifications as its in-house staff.
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