London Evening Standard: Oil giants in US regulator's sights

Jake Lloyd-Smith,

30 March 2004

AMERICAN financial regulators have begun close questioning of specific companies' accounting for oil and gas reserves as part of an industry-wide probe.

The investigation, reportedly disclosed by unnamed sources close to the Securities and Exchange Commission (SEC), is the latest indication that a probe sparked by Shell's reserves cut is gathering pace.

The SEC, the principal market regulator in the US, has embarked on a wide-ranging investigation of reserves accounting that could draw information from all the major industry groups.

The SEC is already investigating the specific lapses at Shell, but the probe has spread to other firms. Some of the inquiries are taking place as part of vetting of regular annual financial reports.

The Anglo-Dutch group stunned investors in January when it said that it had overstated its proven reserves by as much as 20%. It followed that with a second announcement that trimmed its proven reserves still further, stoking fears that worse was to come.

Proven reserves represent the future income stream for a company. They are broadly defined as estimates of crude oil and gas that can be recovered from known reservoirs under existing economic and operating conditions.

The SEC has admitted that defining the concept, which blends geological know-how with financial and technical expertise, can be difficult, partly because changes in technology and price alter the limits of what is recoverable.

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