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THE WALL STREET JOURNAL: Shell Canada Provides Fourth Quarter 2004 Interim Update ( Posted 18 Jan 05



January 17, 2005 12:21 p.m.


CALGARY -- Shell Canada Ltd. (SHC.T) said that, notwithstanding stronger bitumen values during most of last year, adherence to reserve reporting requirements resulted it de-booking all remaining proved Peace River bitumen reserves for Dec. 31, 2004 reporting.


The integrated oil and gas company said the change won't have any material financial impact, adding that it continues to view Peace River as a valuable part of its overall portfolio.


In a news release, the company announced a number of other accounting changes made in the fourth quarter.


It said that, as reported, the attachment of Share Appreciation Rights to existing stock options changes the basis for determining the required accounting expense for benefits under the Long Term Incentive Plan. With SARs, its obligation under the plan is recognized based on the market value of the common shares less the exercise price of outstanding options.


In the fourth quarter, SARs were attached to stock options previously granted but not exercised. This change resulted in an initial, non-cash after-tax charge of C$71 million to fourth-quarter earnings to reflect gains accrued to-date on outstanding options. In 2005 and thereafter, the company's obligation will be marked-to-market and charged to earnings quarterly, it noted.


Shell Canada said that, over the past several years, its share of costs to develop regulatory applications for the Mackenzie Gas Project have been capitalized as pre-development expenditures. It has reviewed its accounting approach on long-lead projects that involve a degree of uncertainty in terms of the timing and realization of future benefits, and has decided to write off front-end expenditures on long-lead projects as incurred (by expensing them) until there is sufficient certainty on timing. Expenditures incurred to-date on the Mackenzie project were expensed in the fourth quarter, resulting in a non-cash after-tax charge of C$32 million.


Shell Canada noted that it remains optimistic about the potential for Mackenzie Delta gas production by the end of the decade.


The company said that, in 2002, it drilled an exploration well (Onondaga B-84) in the Sable sub-basin to evaluate an earlier gas discovery in the Upper Mississauga Formation and a previously untested deeper target. Costs related to drilling the Upper Mississauga Formation were capitalized and the balance of the well cost (related to the deeper target) was written off in 2002. Shell Canada doesn't have a firm development plan for Onondaga and as a result has decided to write off the portion of well costs previously capitalized. This change resulted in a non-cash after-tax charge of C$15 million in the fourth quarter.


Shell Canada said that, effective Jan. 1, 2004, it revised its estimate of the Scotford Upgrader's useful life to 40 years (from 30 years) based on competitor practices and the availability of adequate bitumen supplies over this longer period. This change was applied on a prospective basis. During the fourth quarter, it decided to reverse this decision to achieve better alignment with amortization periods used elsewhere in Shell . This change resulted in a non-cash after-tax charge of C$10 million.


Shell Canada said it will release full operating and financial results for the fourth quarter on Jan. 27.


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-Carolyn King, Dow Jones Newswires; 416-306-2100

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