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The West Australian: Investors howl for Shell's blood

By John Phaceas


OIL giant Royal Dutch Shell is again expected to come under immense pressure this week from investors around the world after Friday's shock revelation it had slashed its oil reserve estimates by 20 per cent.


Shell, which owns 34 per cent of Woodside Petroleum and major stakes in the vast North West Shelf and Gorgon oil and gas fields off the WA coast, saw 8 billion ($19 billion) wiped from its value in Europe as panic selling sent the stock plummeting more than 7.5 per cent.


The sharp drop in its share price came despite its claims the move would have no material financial impact.


Shell said half of the oil and gas downgraded to the status of probable reserves related to its interests in Nigeria and Australia, singling out its 29 per cent share of the $11 billion Gorgon gas project for special mention.


Though a final investment decision on the giant project, managed by ChevronTexaco, is still more than a year away, Shell had booked its share of the fields as proven reserves back in 1997 when the venture signed tentative non-binding letters of intent with prospective gas customers.


The fields boast total estimated gas resources in excess of 40 trillion cubic feet, of which 12.9tcf has been considered firm enough to class as probable reserves.


Shell did not elaborate on what other fields may also have been "recategorised" other than to say the downgrade was largely restricted to undeveloped fields.


Moving into damage control at the weekend, Shell's partners in the Gorgon project stressed there would be no impact on their reserve position or the project itself.


ChevronTexaco, which owns 57 per cent, said it had never booked any reserve figures for Gorgon as it was still an undeveloped project. Shell's announcement "will not affect how ChevronTexaco's worldwide reserves are categorised, including Nigeria and Australia," the company said.


Similarly, 14 per cent stakeholder ExxonMobil said it was confident in its own reserve estimates.


Australia's Woodside Petroleum and BHP Billiton, which like Shell each own a sixth interest in the nearby North West Shelf project, also distanced themselves from Shell's problems.


"As far as we are aware, we don't believe there is any impact on any of our assets," a spokeswoman for BHP Billiton said yesterday. However, the company had been in contact with Shell and would continue to monitor the situation, she said.


Woodside, which manages the NWS project, said reserve estimates for all its assets were determined independently of Shell.


"We are completely separate when it comes to reserve estimates," Woodside's spokesman said. "Whatever numbers Shell carries, Shell carries. We carry our own numbers."


UK analysts and the British press, immediately declared Shell's credibility was in tatters and called for heads to roll, starting with embattled chairman Sir Philip Watts.


"This will be a huge embarrassment for Shell and particularly for Phil Watts," said Tony Alves, an analyst with UK-based Investec Securities.


BNP Paribas analyst David Cline added the news put a big question mark over Shell's internal processes.


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