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Financial Times: Oil groups urged to adopt Anadarko disclosure method


By Carola Hoyos in London

Apr 27, 2004


Posted 28 April 04


The oil reserves scandal that broke at Royal Dutch/Shell in January has prompted many of its competitors to offer their ideas of how best to improve the transpar ency of reserves accounting. But only one competitor appears to have introduced a practice so innovative that it could have avoided Shell's predicament had it been standard in the industry.


In its annual filings, Anadarko, the largest US independent oil company, this year discloses how long its proved undeveloped oil and natural gas fields have been booked with the Securities and Exchange Commission.


By doing so, it is giving away little to its competitors, but at the same time arming its investors with data that goes a long way towards showing them how healthy the company's reserves bookings really are.


Analysts, major shareholders of oil companies and reserves auditors said Shell and others in the industry should adopt Anadarko's approach.


Oil companies could come under pressure over the issue this week as four of the world's five largest listed energy groups report first- quarter earnings.


Caroline Cook, analyst at Deutsche Bank, said: "We clearly need incremental disclosure and with this you would be able to spot stranded reserves."


SEC rules state that oil and natural gas reserves should only be booked as proved if a company is reasonably certain they will be developed under the prevailing economic, political and technological situation.


The SEC does not give a maximum time that proved undeveloped reserves are allowed to remain in the category before they are developed or removed from the books.


But too many reserves, growing too old in the proved undeveloped category, would prompt analysts and investors to raise questions.


Jim Hackett, Anadarko chief executive officer, said in an interview with the Financial Times that the questions Anadarko was hoping to answer internally and for investors and regulators were: "How many of the reserves are proved undeveloped [as opposed to developed] and how do they roll off to become proved developed and what is the time-frame?"


He added: "In light of today's issues we think it is an appropriate measure."


Reserves are one of the most important ways investors are able to judge a company's health.


They indicate where a company's oil and gas, and therefore its major revenue, will come from in years to come. Companies are only asked to divulge a total of proved reserves. They are split into broad regions, usually defined by continents, rather than countries or individual fields.


Anadarko's new transparency was prompted by the added attention the SEC began to pay to how companies booked their reserves around 2001, said Mark Pease, who heads Anadarko's production and development operations in the US.


But several analysts said Anadarko had in the past suffered from market speculation that its reserves were not as robust as they appeared. If that was the case, the company has at least set the record straight and perhaps set a precedent others could follow.

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