The Financial Times: Shell cuts oil reserve figures for second time
By Carola Hoyos and Clay Harris in London and Ian Bickerton in,Amsterdam
Financial Times; Mar 19, 2004
* Anglo-Dutch company is plunged further into crisis
* Annual meeting and report delayed for two months
Royal Dutch/Shell has cut its reserves for the second time since January and delayed its annual report and shareholder meetings by two months.
The surprise announcement of what it called "disappointing and embarrassing" mistakes came only a day before Shell had been due to file details of its 2003 reserves with the US Securities and Exchange Commission - one of five authorities in the US and Europe investigating the group.
The Anglo-Dutch company, which two weeks ago forced the resignation of Sir Philip Watts as chairman, admitted it was now vital to restore "confidence and credibility in reserves reporting practices". But one analyst called the latest cut "staggering".
Following allegations that it had been aware long before January of doubts over its reserves, Shell yesterday provided its most detailed account yet of its reserves review, the investigations it faces from authorities in the US and Europe, and the actions it was taking to improve corporate governance.
Jeroen van der Veer, Shell's new chairman, denied for the first time that he had known about incorrect reserves bookings, saying: "The underlying question which you always get is did you know about incorrect bookings in SEC returns? The answer is no."
Yesterday's announcement cuts Shell's proved oil and natural gas reserves for 2002 by a further 250m barrels of oil equivalent, bringing the total reserves that had been erroneously booked with the SEC to 4.15bn, or more than 20 per cent of the originally reported figure.
It also reduces Shell's planned 2003 bookings by 220m barrels. This means the company - which has struggled compared with its peers to find new reserves - will now have replaced only 82 per cent of its depleted stocks in 2003 rather than the 98 per cent it announced in February.
The latest miscalculation was uncovered by Ryder Scott, outside auditors hired by Shell two weeks ago. Ryder Scott found Shell had used technology, such as seismic 3-D mapping, which was insufficient under SEC rules to determine the volume of its reserves, in particular at Orman Lange, its Norwegian gas field.
The mistake, described as "disappointing and embarrassing" by Malcolm Brinded, Shell's newly appointed head of exploration and production (EP), is the latest in a string of bad news for Shell investors, who suffered a further 3 per cent drop in Shell's share price to 361p yesterday.
"I hope that we don't lose a third head of EP in short order," Mr Brinded said, to laughter from the audience.
Shell faces investigations by the SEC, the US justice department and one regulator in the UK and two in the Netherlands. Investors have asked whether more executive changes will be needed, with particular questions about Judy Boynton, the chief financial officer, who is unpopular with some investors and staff. Board members have said no further dismissals are planned.
The annual report is now scheduled for late May, once Ryder Scott has finished its evaluation, which so far has covered 40 per cent of Shell's reserves.
The AGM is now due on June 28. But the most critical date will be the release of the report of Shell's internal audit committee on the circumstances surrounding the erroneous SEC bookings, which is expected in six weeks.