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Bloomberg News: Shell cuts estimate of oil reserves

Saturday, January 10, 2004


New questions raised about management


Royal Dutch/Shell Group cut its estimated proven oil and gas reserves by 20 percent on Friday, setting off a share price slide and sharp investor criticism of the company's management.


"Confidence in management wasn't high before, and this certainly hasn't helped," said Jon Wright, an analyst at Citigroup in London who cut his rating on Shell two days ago. "People will worry about the growth outlook."


Shell's proven reserves at the end of 2002 were 15.5 billion barrels, down from the 19.4 billion stated earlier, a spokesman, Simon Henry, said. The 3.9 billion-barrel difference still has "scope for recovery" and may ultimately be produced, Shell said. The London-based company said it replaced 70 percent to 90 percent of 2003's output, signaling reserves may fall further.


The reduction is equal to 13 percent of all the proven crude oil reserves in the United States.


The U.S. Securities and Exchange Commission has asked oil companies to review their assessment of reserves in the Gulf of Mexico, Henry said. That was unrelated to Shell's investigation, which was set off by studies done in the fourth quarter.


Last year, BP, Europe's largest oil company, cut an estimate of reserves in a Russian joint venture because of a change in SEC rules.


Shares of Shell Transport Trading Co., which owns 40 percent of the group, in London declined 30 pence to 371 pence, or $6.84. Royal Dutch Petroleum Co., which owns the rest, lost E3.17 to E38.26, or $49.12, in Amsterdam.


The Standard Poor's ratings agency said it may cut Shell's AAA credit rating. Shell is one of only three companies in Europe with such a high rating. Exxon Mobil, the largest investor-owned energy company, is the only other oil company viewed as highly by debt-rating companies.


In some cases, the reserves are no longer considered to be proven because development plans have changed, Henry said. Proven reserves are generally defined as those that can be extracted from known fields under existing economic and operating conditions, BP said in its annual world energy review.


The changes mainly affect reserves added from 1996 to 2002, and the biggest impact is on deposits in Nigeria and the Gorgon project in Australia, a venture with ChevronTexaco and Exxon Mobil. Shell has no reason to believe any wrongdoing was involved in the earlier estimates, Henry said.


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