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Financial Times: Nigeria holds the clue to group's wrongly booked reserves debacle


By Carola Hoyos in London and Michael Peel in Lagos

Apr 24, 2004


About one-third of the reserves Royal Dutch/Shell wrongly booked with the US Securities and Exchange Commission lay in Nigeria.


How the European energy group booked many of the same fields with the Nigerian government might shed more light on how it became embroiled in one of its most damaging scandals.


Shell relied on revisions in data, rather than new discoveries of oil and gas, to raise its proved reserves in Nigeria in the past three years, documents showed.


Jonathan Bearman, of Clearwater, a consultancy that works on Nigerian business intelligence, said: "Shell made a very ambitious case for reserves and production growth in Nigeria between 2000 and 2003, making what appears to be excessive use of reviews of existing data rather than actually drilling wells." He said this helped Shell strengthen its case for more funding from the Nigerian government for their joint venture projects.


Shell owns 30 per cent of the Nigerian joint venture with the Nigerian state oil company owning 55 per cent, and Total of France and Italy's Agip, the rest.


"But Shell has not delivered on the plans for production and reserves growth that it previously indicated in its submissions to Nigerian authorities," he said.


Mr Bearman said although Nigeria's booking requirements were different to the SEC's, the two were not unrelated. He said a big discrepancy would have raised questions in Nigeria.


But many in Nigeria have remained silent. Analysts suggested it wants to keep reserves high as it argues for a larger quota in the Organisation of Petroleum Exporting Countries, the oil cartel.


Documents submitted by Shell to the Nigerian government said the company, in 2000, raised total proven reserves from 8.56bn barrels to 9.29bn barrels.


This comprised the "discovery" of 1.06bn barrels of "new" reserves minus production of 285m barrels. Of the 1.06bn barrels of new reserves, 893m came from studies and reviews of data and 168m from exploration.


In 2001, 379m of the 859bn barrels of new reserves came from studies and reviews of data and 123m from a "negative reserves correction". Just 283m came from exploration. The pattern for the next two years was similar, according to the documents.


Neil McMahon, analyst at Sanford C Bernstein, the financial institution, said: "Regularly taking old seismic data and reprocessing it using new algorithms is not uncommon in the industry."


But Shell's total production numbers came in well below forecasts made in April 2001, putting in question the company's reserves numbers, analysts said.


In April 2001, Shell estimated production from its Bonny system in Nigeria would jump from 476,000 barrels a day in 2001 to 720,000 b/d in 2002. At Forcados, production was to jump from 700,000 b/d in 2001 to 900,000 b/d in 2002.


But total production for the two systems in 2002 came to 254.5m or 700,000 b/d, about 40 per cent of the forecast. Shell was not willing to confirm the data.


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