HoustonChronicle.com: Shell woes muddy fate of old fields
By STEPHEN LABATON
April 8, 2004, 12:54AM
The Royal Dutch/Shell Group's oil production in Oman has been declining for years, belying the company's optimistic reports and raising doubts about a vital question in the Middle East: whether new technology can extend the life of huge but mature oil fields.
Internal company documents show that the Yibal field, Oman's largest, began to decline rapidly in 1997. Yet Philip Watts, Shell's former chairman, said in a public report in 2000 that "major advances in drilling" were enabling the company "to extract more from such mature fields." Shell documents suggest the figure for proven oil reserves in Oman was mistakenly increased in 2000, resulting in a 40 percent overstatement.
The company's falling production and reduced reserves in Oman are part of a broader problem facing Shell, the British-Dutch oil giant that earlier this year lowered its estimate of worldwide reserves by 20 percent, or 3.9 billion have expressed concerns that a technique Watts said would recover more oil not only did not do so, but it increased the amount of water in the extracted oil, increasing production costs.
In the last 10 years, horizontal drilling has become one of the most important innovations in oil production and is widely used around the world. If properly managed, it can extract more oil from some fields and can pump it out sooner and more efficiently than traditional drilling.
Shell helped pioneer the technique and it accelerated production in Yibal, documents show. But a Shell document last fall did not project the technique to increase the oil that will be recovered from the field and said it resulted in water being mixed in.
Watts made his optimistic assessment of the Oman field in May 2000, when he was the company's head of exploration and development. The board dismissed him and Walter van de Vijver, chief executive of the exploration and production business, in early March, about two months after Shell reduced its reserves estimate.
And the Wall Street Journal reported today that Shell reassigned Frank Coopman, the top financial executive at its exploration and production business. Coopman had been chief financial officer of Shell's "upstream" businesses since 2002.
Regulators in Europe and Washington, as well as prosecutors at the U.S. Justice Department, are investigating whether Shell's disclosures about its barrels. Documents show that senior executives were told calculations of reserves were too high in 2002.
While Oman represents a small part of Shell's reserves, oil industry experts say the company's experience there highlights broader questions about the future role of Western oil companies and their technology in the Persian Gulf.
In the case of the Yibal field, Shell and Omani oil engineers and auditors reserves complied with securities laws.
The company says it is cooperating with the investigations and expects to announce the results of an internal review soon.