The Sunday Observer (UK): Shell reserves shortfall 'even worse than feared': Internal audit expected to downgrade another 500m barrels (ShellNews.net) 23 Jan 05

Oliver Morgan, industrial editor

Sunday January 23, 2005

The City is braced for further oil reserve downgrades from Royal Dutch/Shell - including one of almost 150 million barrels arising from operations in Canada alone - when it announces its results at the beginning of next month.

Following a series of cuts to reserves last year totalling some 4.47 billion barrels, the Anglo-Dutch firm initiated its own internal audit of the 14.35 billion barrels stated to be in its reserves at the end of 2003.

Last year's downgrades caused a crisis within the company and led to the resignation of chairman Sir Philip Watts and head of exploration and production Walter van de Vijver.

In October, it announced that it had audited 8 billion of these barrels and found that 900 million of them might have to be downgraded.

The company is understood to have almost completed the task - it had got through 90 per cent of the reserves by Christmas - and expectations now are for an increase to the 900 million figure.

Last week, Shell Canada, in which Royal Dutch/Shell has a 78 per cent stake, announced it would have to make 'negative reserves revisions' of 182 million barrels at its Peace River bitumen field (a non-conventional source of oil).

Shell will have to include its 78 per cent share of this revision - 142 million barrels - in its calculations of any further downgrades.

Analysts are expecting significant further reductions. One said: 'They said they would update us on 3 February. In October they said 900 million were to be potentially downgraded, and that was after they had got though 55.7 per cent of their reserves. If they have finished the process - and they said they would by the end of the year - we would expect a further significant figure.'

Analysts were loath to place an exact figure on the possible downgrade - Shell has successfully prevented leaks of previous downgrades - but some privately indicate a further 500 million barrels may be cut.

Meanwhile, investors are arguing that the company should publish annual audits of its reserves carried out by external consultants.

Eric Knight, managing director of Knight Vinke Institutional Partners, who played a key role in forcing the company to overhaul its cumbersome corporate structure in the wake of the scandal, says it should start by publishing the report on reserves by US consultant Ryder Scott delivered last year: 'The only company that does something like this on an annual basis now is [Norwegian] Statoil. If Shell did it, it could only add to its credibility - and could force others to follow.'

http://observer.guardian.co.uk/business/story/0,,1396385,00.html