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The New York Times: Nigeria Says Reserves Are Unaffected by Shell Cuts



March 24, 2004


WASHINGTON, March 23 - Nigeria's national oil company says its oil and gas reserves have not been affected by the Royal Dutch/Shell Group's recent reduction of its estimates of proven reserves in the country.


In January, Shell stunned investors by reducing its global reserve estimates by 3.9 billion barrels, or 20 percent, including a large but unspecified cut in Nigeria. On Friday, after an article in The New York Times reported on internal company documents that recommended confidential treatment for Nigeria, the company disclosed Nigeria's share was 1.3 billion barrels.


That same day, Shell's outside lawyers were contacted by "a representative of the U.S. Attorney's office in Manhattan," a Shell spokesman, Simon Buerk, said on Tuesday, confirming a report last week in The Times that the Justice Department had started an inquiry into the company's disclosures.


A statement provided on Monday by the Nigerian National Petroleum Corporation, responding to questions submitted a week ago, said Shell's revision did not affect Nigeria's position because of different standards of reporting reserves. Nigerian national standards, according to the statement, allow reserves to be reported even if they have only a 10 percent chance of being recovered. The more rigorous regulatory standard, under which Shell and other publicly traded companies operate, only allows those with a 90 percent chance of recovery with existing wells and equipment to be reported as proven reserves.


Another difference is that proven reserves, under the Securities and Exchange Commission definition, involve a financial commitment to extract the resource, while Nigeria's standards are focused on the geological resources.


"There is no precise international legal standard or industry agreement on how to classify reserves," said Fatih Birol, the chief economist at the International Energy Agency, "and this is a major concern for consumers and producers."


There have been international efforts to increase transparency between resource rich countries and private companies. A report to be released on Wednesday by Global Witness, a London based nongovernmental group, highlights some of the problems in oil revenue reporting.


The issue is important because much of the world's oil is in less-developed countries like Nigeria, but most of the financial and technological resources needed to develop that oil are in the hands of large Western companies like Shell.


The Nigerian oil company said that its relations with oil companies were cordial and that "the strength each party brings to the partnership and the dividends outweigh the differences."


Shell informed Nigeria "of the significant revisions" in its S.E.C. proven reserves in early January 2004, the statement also said.


A report prepared for Shell's senior managers last December had recommended keeping secret from investors the details of its revisions in Nigeria for fear of damaging its business relationship as well as Nigeria's dealings with the Organization of the Petroleum Exporting Countries. One reason cited in the report was the likelihood that it would "undermine the current resolution" of bonus negotiations between the two parties, even though the bonus pertained to the Nigerian definition of reserves, not the stricter S.E.C. definition.


But the Nigerian statement said that "there is no linkage between Shell's lowering of its proved reserve estimate for Nigeria and the resolution of the bonus issue."

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