New York Times: Oil Firms Differ with on SEC Gas Reserves

By REUTERS

Published: June 29, 2004

Posted 30 June 04

LONDON/OSLO (Reuters) - The oil and gas reserves controversy sparked by Royal Dutch/Shell's shock January downgrade took a new turn on Tuesday as two of Shell's partners in a Norwegian gas field differed over reserves bookings.

The divergence emerged despite months of talks between the companies and U.S. regulator the Securities and Exchange Commission (SEC) to try to iron out confusions over what can and cannot be booked as ``proved'' reserves.

European firms BP and Norsk Hydro both unveiled the contents of their obligatory ``20F'' annual filings with the SEC on Tuesday. The reports are a U.S. listing requirement for foreign firms -- equivalent to the 10K annual reports produced by domestic U.S. companies. In its filing, Britain's BP reaffirmed its bookings for the Ormen Lange gas field, Norway's biggest offshore development. However, Norwegian company Norsk Hydro cut its bookings for the same field by about a third.

Ormen Lange was the focus of one of Shell's well-publicized reserve cuts this year. Citing tightened SEC guidance, Shell slashed its estimate of proven reserves there to a point at which BP and Norsk Hydro were left up to four times more optimistic.

In March, when Shell announced the cut, both BP and Norsk Hydro stuck to their guns. By Tuesday, Norsk Hydro had shifted toward Shell's position, but BP had not.

``What confuses investors is the fact that one company is booking one figure, and another company is booking another figure,'' said Investec analyst Bruce Evers.

``Both figures are probably right, (but) ... it's a debate that's going to rage on until the SEC tightens its definitions.''

SEISMIC SHIFT

SEC rules date back to the late 1970s and pre-date some technological improvements in 3D-seismic testing of reserves. However, it has issued guidance since on interpretation, including one update this year.

One of the key reasons Shell gave for reducing its reserves estimate at Ormen Lange was a concern that the seismic testing done there was not backed by enough physical testing to comply with SEC requirements. The SEC prefers to see more expensive and time-consuming flow rate testing done on wells, but it recently moved to relax guidelines in the U.S. Gulf offshore development region to allow more seismic interpretations in some cases.

BP Chief Executive John Browne has said it is ``illogical'' for such a relaxation to be confined to the U.S. Gulf, and on Tuesday a BP spokesman said the company remained ``confident'' of its bookings for Ormen Lange. He declined to comment on the divergence of opinion with Norsk Hydro, but said the company's talks with the SEC on reserves interpretation were continuing.

In Oslo, Norsk Hydro Chief Executive Evind Reiten confirmed that he had acted under SEC guidance to be more cautious on seismic data.

``They advised us to base our booking to a larger extent on the data from each of the (four) wells that we have drilled in the Ormen Lange field...and less on seismic data,'' he told Reuters. However, he declined to comment on the difference with BP, or say if the SEC had indicated any change in guidelines is coming.

Ormen Lange carries a total development price tag of 66 billion Norwegian crowns ($9.54 billion). It is due to start up in 2007, and has estimated recoverable reserves (ERR) of about 399 billion cubic meters of gas, or 2.51 billion barrels of oil equivalent (boe). Recoverable reserves is a looser measure than the ``proved'' reserves in the 20F filings.

Shell has a 17 percent stake. After the cut it made in March, it says proved reserves are about 21 percent of ERR.

Norsk Hydro has 18 percent. Until Tuesday it counted 70 percent of ERR as proved, now its has slashed this by a third. BP has 10.3 percent, and continues to say that 80 percent of ERR are proved.

Other partners in the field include Exxon Mobil Corp , with 7 percent, and state-owned Norwegian firm Petoro, with 36 percent. Petoro does not have to lodge estimates with the SEC. Exxon Mobil has not disclosed its bookings. Norway's Statoil has 11 percent of the field and is only marginally more optimistic than Shell.

The field will be linked by pipeline to Britain, and Shell will become operator once production begins.