The Business: Benchmark Column: Shell

The oil industry is still essentially run by geologists, so Shell's executives will have a ready analogy for the periodic tremors the seismic upheaval of Shell's 3.9bn barrel reserves downgrade in January is still throwing out. Last week's 120m barrel downgrade, Shell's fourth this year, barely registered however.

The cut pushed Shell's total reduction in proven reserves to a new total of 4.47bn barrels, and it was forced to trim earnings for 2001-03 by $402m. Shell Transport's shares rose 2%. What really held up the share price was belief that Shell's auditors, KPMG and Pricewaterhouse-Coopers, had decided to give the annual report a clean bill of health.

Last week's reserves revision will not be the last, though. The US Securities and Exchange Commission (SEC), is still scrutinising the reserves auditing policies before a 20-F accounts statement for last year is published on 30 June. In addition, Shell's annual report revealed 100m-150m barrels of Canadian reserves were still under review and the SEC investigation could still throw up further anomalies.

As a result, there's no doubt that once Shell completes its 20-F, there will be more revisions. But, due to the engineer's typical caution, revisions tend to be in an upward direction. After the rigorous review Shell's assets have been through over the last year, Shell's reserves are more likely to move in a positive direction than most.