Royal Dutch Shell Group .com

Reuters: Major Oil Stocks Fall on Shell Revision

By Joseph A. Giannone    
Fri Jan 9, 1:13 PM ET    

NEW YORK (Reuters) - The shares of major oil companies fell on Friday after Royal Dutch/Shell Group (RD.AS) (SHEL.L) shocked investors by slashing its "proven" reserves 20 percent, raising concerns others may also have improperly booked reserves.

Oil companies regularly reassess their reserves based on drilling and tests and "proven" designates energy that can be extracted and sold profitably under current market conditions.  

Shell shifted 3.9 billion barrels of reserves previously listed as "proven" into two less valuable categories -- "unproven" or having "scope for recovery." The news revealed excessive optimism in key areas such as Australia's giant Gorgon gas field, onshore activities in Nigeria and other areas in the eastern hemisphere.  

Shares of Shell Transport and Royal Dutch Petroleum were the second- and third-biggest losers on the New York Stock Exchange (news - web sites) in early trade. Royal Dutch ADRs fell 7 percent to $49.06, while Shell Transport fell 7 percent to $41.70 per ADR.  

The news also unnerved investors concerned Shell's partners in some projects might also announce revisions. The one field Shell identified as a problem was Gorgon, an $8 billion gas development in which Shell owns 29 percent. ChevronTexaco Corp. (NYSE:CVX - news) is 57 percent owner and operator.  

ChevronTexaco shares fell 1.2 percent to $85.05. Exxon Mobil Corp.(NYSE:XOM - news), which owns 14 percent of Gorgon, fell 1.1percent to $40.46 in midday trade.  

ChevronTexaco officials declined comment, but Exxon Mobil defended its numbers.  

"We are very confident in our proved reserves numbers and stand behind them," Exxon Mobil spokesman Tom Cirigliano said. "They meet all S.E.C. regulations and guidelines. We're very conservative and we have a very structured, deliberate process in moving reserves into the proved reserves category."  

Exxon Mobil and ChevronTexaco didn't book Gorgon reserves.  


Analysts and company officials said Shell's problems, mostly stemming from reserves booked in the 1990s, are unique to Shell and dismissed fears about a wave of revisions.  

"It seems its very much a Shell-specific issue due to their methodology for booking reserves," said Sanford Bernstein analyst Neil McMahon.  

Shell's regional units for years operated as independent fiefdoms, booking reserves by their own rules. So despite a reputation for conservatism, Shell's reserves accounting was among the most liberal, John S. Herold analyst Lysle Brinker said, including more undeveloped reserves as "proven" than did its peers.  

Of Shell's proved reserves, 43 percent came from developed fields, he said, well below the industry average of 60 percent. By comparison, 66 percent of ChevronTexaco proven reserves are developed and 62 percent of Exxon reserves are developed.  

"If there is a lesson to be learned, it's that any company with a high percentage of undeveloped reserves could be at risk of reclassification," Brinker said.  

Howard Weil analyst Gene Gillespie said the broad decline in oil stocks on the news was unwarranted, noting that companies all book their reserves differently.  

"It's guilt by association," Gillespie added. (Additonal reporting by Melanie Cheary, Sudip Kar-Gupta, Andrew Callus and Andrew Mitchell in London)

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