The Financial Times: Oil reserves
Published: March 20 2004 4:00 | Last Updated: March 20 2004 4:00
Shell may be red-faced over its reserves fiasco, but the latest downgrade could prove to be a bigger headache for its industry peers. Shell is now using a strict interpretation of Securities and Exchange Commission rules for its share in the Ormen Lange Norwegian gas field, recognising only 20 per cent as "proved" reserves. Statoil and ExxonMobil have also been conservative, but BP and Norsk Hydro apparently far less so.
BP says it is confident it has complied with SEC guidelines. Although data for individual fields are not disclosed, the size of its 2003 reserve additions suggests it has included 80 per cent of its share of Ormen Lange. Norsk Hydro has booked 75 per cent of its share. Adopting the Shell approach would push its reserve replacement ratio for 2003 down to less than 100 per cent from 216 per cent.
The latest downgrade of reserves is more technical than Shell's previous re-categorisations. Nevertheless, the potential for wider reserve restatements could dent investor confidence in the oil sector.
The oil companies deserve some sympathy. While this does not excuse Shell's breach, the SEC guidelines are a large part of the problem. Little changed in decades, they are out of step with an industry drilling in deep water and using sophisticated 3-D seismic mapping technology. A more sensible set of rules should be thrashed out, which would also reduce investor uncertainty.