THE WALL STREET JOURNAL: Shell Makes Fourth Downgrade Of Oil Reserves This Year

May 24, 2004

LONDON -- Royal Dutch/Shell Group of Cos. Monday downgraded the size of its oil reserves for the fourth time this year.

The company, which stunned shareholders in January when it announced its confirmed oil and gas holdings were 20%, or 3.9 billion barrels, smaller than it had claimed, said that it was downgrading 103 million additional barrels of reserves from "proven" to less certain categories.

Shell, the world's third-largest publicly traded oil company by market capitalization, blamed the new reserves downgrade on an accounting change involving "royalties paid in cash in Canada."

Combined with two other announcements since January, it brings the total of downgraded reserves to 4.47 billion barrels, the company said.

Reserves are an oil company's most valuable asset, and any reclassification into less certain categories is a serious concern for investors.

Shell last month reported a 17% drop in first-quarter net income as a big gain last year offset the benefits of this year's higher oil prices. The company also warned about rising costs at two key projects, and said it would boost capital spending as it attempts to turn around its core exploration-and-production unit.

Shell's massive reserves restatement had a limited impact on its earnings.

Shell said its net income fell to $4.43 billion from $5.31 billion in the first quarter of last year. Sales were $76.2 billion, up 10% from $69.4 billion. Stripping out the fluctuating value of its inventories and a $1.29 billion credit largely related to the sale of a stake in a German gas company last year, Shell said it earned $4.25 billion in the latest quarter, up 9.3% from $3.89 billion in the year-earlier period.

Shell also said it would buy back about $2 billion, or €1.7 billion, in shares this year.

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