Bloomberg.com: Shell, Beset by Reserves Probe, Boosts Canada Oil-Sand Estimate
April 2 (Bloomberg) -- The Canadian unit of Royal Dutch/Shell Group, Europe's second-largest oil company, increased its estimated reserves at a $4.36 billion oil-sands project in Alberta after new drilling found another viable deposit.
Shell Canada boosted its proved reserves for the tar-like crude by 8.5 percent to 651 million barrels because of a 68 million-barrel increase, its annual report showed. Partners ChevronTexaco Corp. and Western Oil Sands Inc. lowered their reserves in Canada and are not yet party to the lands where Shell found new crude, according to company reports and executives.
``We have gone to another area, so it's not different numbers for the same area,'' said Neil Camarta, Shell Canada senior vice president of oil sands, in a telephone interview. ``We've been able to book those barrels from that new area.''
Reserves are increasing at the Shell Canada-led mine and processing plant as oil companies come under scrutiny over the resources they include on their books. The U.S. Securities and Exchange Commission is investigating Houston-based El Paso Corp. and Shell, based in London and The Hague, for overstating their holdings.
Shell Canada booked the reserves from a property adjacent to its Muskeg River mine called Sharkbite, where it has been drilling for several years, Camarta said. Shell Canada owns the property, and ChevronTexaco and Western Oil have options to buy into it, he said.
The company added 68 million of proved reserves and 50 million of probable reserves from Sharkbite to cover its share of reserves needed during the 30-year lifespan of the Athabasca Oil Sands Project, he said.
Shell shares in London were up 5 pence at 360.5 pence as of 3:55 p.m. in London.
Shell, the third-largest publicly traded oil company, cut its proved reserves on Jan. 9 by 3.9 billion barrels, or 20 percent. The restatements, which excluded oil sands, helped push down Shell's shares in London by 10 percent, led to the ouster of Chairman Philip Watts, 58, and sparked investor lawsuits and a Justice Department probe.
Shell Canada, 78 percent-owned by Royal Dutch/Shell, controls 60 percent of the project designed to produce 155,000 barrels per day of bitumen, an extra-heavy crude extracted from Alberta's oil- soaked sands. The bitumen is upgraded in Edmonton, Alberta, into synthetic crude for refining into gasoline, diesel and other products.
Western Oil Sands of Calgary and San Ramon, California-based Chevron each own 20 percent. Commercial production at the project, Canada's third oil-sands mine and the first opened in 25 years, began last year.
Shell Canada said in the annual report that it didn't use an outside auditor in preparing its oil-sands reserves data. The company has sufficient internal expertise to assess the unconventional oil deposits, spokeswoman Jan Rowley said.
ChevronTexaco, the second-largest U.S. oil company, pared its oil-sands reserves to 171 million barrels as of Dec. 31, down 6.6 percent from the end of 2002, according to SEC filings.
Production accounted for about half of the reduction, Paul Rogers, manager of oil-sands assets at Chevron's Canadian unit, said in a telephone interview.
Higher oil prices prompted the company to revise its estimate of when it will pay increased royalties to Alberta, knocking off 6 million barrels, he said.
``To the extent that royalties go up or down, they will affect how many barrels that we're reporting of reserves since we report net barrels after royalties,'' he said.
Alberta has a generic royalty program for oil-sands developments. It takes a 1 percent share of gross revenue until companies recover their costs plus a return on investment, based on yields of Canadian government long-term bonds, according to a government Web site. After payout is reached, oil-sands developers contribute 25 percent of net profits to the province.
No Talking to Shell
High oil prices caused Chevron to move forward its projection of when the switch to increased royalties will occur by ``significantly more than a year,'' Rogers said. He declined to specify a date, saying the information was confidential because it was based on the company's oil price forecast.
ChevronTexaco has not made a decision on participating in Sharkbite because the company wants to gain more experience with oil recovery rates from the existing mine's ore, he said. The company did not hire an independent engineering firm to evaluate the reserves, he said.
``Different companies will book their reserves in different manners as they see fit,'' he said. ``We don't talk to Shell specifically about what they're going to book and what we're going to book. We follow our company's procedures for the reserves, and they do it their way.''
Western Oil Sands employed outside engineers to evaluate its 20 percent stake. The company's oil-sands reserves fell to 214 million barrels at Dec. 31, down 3.6 percent from 222 million at the start of the year, Western Oil Sands said in a statement.
Production of 5.2 million barrels accounted for most of the decline, the company said in a statement. The revision was also based on interpretation of new data and a review by project management, the statement said.