Royal Dutch Shell Group .com Shell cuts reserves again, delays annual report


March 18, 2004, 8:25AM

Reuters News Service


LONDON - Oil giant Royal Dutch/Shell cut its oil and gas reserves again today and said it would delay publication of its annual report, due out on Friday, until May.


Some 250 million barrels of the new reduction applies to reserves at end-2002. A further 220 million barrels affects 2003, thereby increasing Shell's total reserves cut for that year to 4.12 billion barrels from 3.9 billion previously.


"This means about a quarter of what they've booked for 2003 goes into non-proven reserves," said one trader. "Terrible."


Shell's troubles have sent shockwaves through the industry, and have already cost the jobs of its two top executives.


Its shares have fallen some 10 percent since it cut its proven reserves by 20 percent in January.


Shell shares in London were trading 3.8 percent lower at 358 pence at 1345 GMT, while stock in the Dutch arm were 3.7 percent down at 38.10 euros in Amsterdam.


The group also revealed for the first time that among regulatory investigations it faced was one of potential insider trading launched by The Autoriteit Financiele Markten (AFM), the financial regulatory body in the Netherlands.


Shell is already under heavy pressure from investors to come up with an explanation for why it had to cut its proven reserves in January. It faces an investigation from the U.S. Securities and Exchange Commission (SEC) and reports have said the United States may also be preparing a criminal probe.


Shell said today an internal review was continuing and, "if additional actions are identified, they will be actioned and announced as appropriate," a hint that more management heads may roll.


The new downgrades follow a review of its reserves by external experts Ryder Scott. The 2003 part amounts to a downgrade of reserves booked at Ormen Lange, offshore Norway, which it said "did not strictly follow SEC guidance."


Analysts say the SEC's tightening guidance on reserves is causing problems for a number of companies.


Shell said its annual shareholders meeting was postponed to June from April, but that first-quarter results would go ahead as planned on April 29.


The 2003 cut of 220 million barrels reduces the reserves replacement ratio reported with 2003 results in February by 16 percentage points to 82 percent.


A debt trader said the cost of insuring against Shell's debt default rose around one basis point after the news to 11 basis points. Debt rating agencies have already put Shell's top-rated debt on notice for a possible downgrade.


Shell said the new reserves downgrade would add $20 million to costs for last year -- a small amount for a company that regularly makes more than $10 billion a year of net profit.


"There's a limited immediate financial effect, but the real point is what it tells you about their future potential," said Brendan Wilders, analyst at Oriel Securities. He said the Dutch insider-dealing case was an additional concern.

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