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THE WALL STREET JOURNAL: Shell Is in Settlement Talks Over Oil Reserves Scandal: “Royal Dutch/Shell Group said it is in settlement talks on some of the class-action litigation unleashed after it was forced to reclassify its oil reserves.” ( 1 April 05


April 1, 2005; Page A12


Royal Dutch/Shell Group said it is in settlement talks on some of the class-action litigation unleashed after it was forced to reclassify its oil reserves.


In a filing with the U.S. Securities and Exchange Commission, the oil company said it was in talks with holders of various Shell Oil Co. pension plans that had been launched in the U.S. The company didn't disclose any estimated amount it may have to pay in any settlement and said no financial provisions have been taken.


The filing contains no information that the group is in talks on any of the other class-action lawsuits launched in the wake of the reserves' reclassification, in which the company revealed its oil reserves were substantially smaller than it had earlier reported and led to the departure of Chief Executive Philip Watts.


Shell said in the filing that it had reserves of 11.9 billion barrels of oil and gas holdings at the end of 2004. Shell said the proven reserves figure excluded the Athabasca oil sands mining reserves of 600 million barrels. Those are open-cut mines, while the SEC accepts only reserves found by drilling.


On Feb. 3, Shell reported end-2003 reserves of 12.95 billion barrels of oil equivalent. It said at the time, reserves probably had fallen further in 2004 and would decline again this year.


The oil company, which is still recovering from a scandal that forced it to drastically reduce the level of its proven reserves, said that after replacing only 19% of the oil that was pumped out of the ground in 2004, its recoverable reserves stood at 11.9 billion barrels at the end of the year, down from a restated figure of 12.95 billion barrels in 2003.


In an annual filing to the SEC, the company noted that the low rate at which it is bringing new discoveries on stream to replace production "is clearly a concern." However, it blamed the low reserves on the exploration strategy of the former board in the 1990s and the accompanying relatively low investment. "Exploration has since been refocused and investment levels have increased," it said. Shell said in January it was hiring more than 1,000 engineers to strengthen the unit at the center of the reserves crisis.


Shell reiterated its target of a reserves-replacement ratio -- or the amount of new oil it finds against what it pulls from the ground -- of at least 100% over 2004-08, despite the much lower figure recorded last year. Rivals such as Britain's BP PLC and U.S. giant Exxon Mobil Corp. have reserves-replacement ratios of more than 100%.


Shell has been struggling to regain ground since former Chief Executive Philip Watts acknowledged in January 2004 that the company had overstated its reserves, its most precious asset. The company was forced to cut its reserves for 2002 and 2003, and the crisis led to the resignation of three of its senior executives, including Mr. Watts, and $150 million in fines from British and U.S. regulators.


The company, which is dual-listed in Britain and the Netherlands, also decided to scrap its twin board structure to eliminate further accounting failures.


Shell reiterated that it forecasts output for 2005 and 2006 to remain in the range of 3.5 million to 3.8 million barrels of oil a day, lifting to between 3.8 million and 4.0 million by 2009. Outlining a new "production aspiration," it said it expects to produce between 4.5 million and 5.0 million barrels a day by 2014.


The company added that it plans to deliver around $5 billion of upstream divestments and business swaps between 2004 and 2006, and flagged the potential for acquisitions. "Focused acquisitions will be considered, especially those which provide price and exploration upside, which fit the strategic themes the group targets and where the group can see clear scope for long-term value growth," it said.


--The Associated Press contributed to this article.


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