National Public Radio
March 19, 2004
Analysis: Royal Dutch Shell restates its oil reserves
Edition: 10:00-11:00 AM
BOB EDWARDS, host:
The troubles for Royal Dutch Shell keep growing. The price of Shell stock slid further yesterday after the company again announced that its estimated oil and gas reserves are lower than presumed and that restatement is much smaller than the one in January. NPR's Jim Zarroli reports.
JIM ZARROLI reporting:
Shell was supposed to release its annual report today, but yesterday the company announced the report would be delayed by two months. The reason was the company had found another mistake in its oil reserve estimates. It said the mistake was technical in nature, having to do with Securities and Exchange Commission reporting requirements. But it resulted in the company having about 250 million fewer barrels of proven oil reserves than it thought during 2002. The company also lowered its 2003 estimate by 220 million.
At a news conference made available over the Internet yesterday, Shell officials seem contrite. Malcolm Brinded is the company's managing director. He called this restatement `a surprise and a disappointment.'
Mr. MALCOLM BRINDED (Shell): This isn't an exact science but it is up to us to make sure that we get it right and, in particular, that we strictly adhere to the SEC guidance. We can and we should've done better.
ZARROLI: Normally, an announcement like this might not attract much attention, but investors are still reeling from an earlier restatement by Shell. In January, the company said it had overestimated its proven oil reserves by 20 percent. That led to the resignation of Shell's chairman, Philip Watts, and its head of Exploration and Production. Since then, the SEC and the Justice Department have said they are looking into what happened. So are Dutch and British officials. Fadel Gheit is an oil industry analyst at Oppenheimer & Co. He says Shell's credibility is very much on the line, and company officials had no choice but to come clean yesterday.
Mr. FADEL GHEIT (Oppenheimer & Co.): Now they are going to be gun-shy because now they are under scrutiny. Now they know that they got caught.
ZARROLI: But Gheit said the company hasn't gone far enough. There have been recent reports that Shell executives knew about reserve problems long before they told the public. Yesterday the new chairman denied he had any prior knowledge. Gheit says the restatement suggests there's some big problems with the way the company is run. He says getting rid of two senior executives doesn't address this. That's especially true, he says, because some executives who approved the earlier reserve estimates are still with the company. One thing Shell should consider, he says, is to bring in new management from outside.
Mr. GHEIT: They are not facing reality. They are in denial. They are still saying that they're getting rid of two individuals although they are higher people in the organization. That will take all the problems away. That's not true because the system has to be revamped, the system has to change.
ZARROLI: If that isn't done soon, some analysts say the company's reputation could suffer irreparable damage.
And more bad news could come down the road. Shell said yesterday it was preparing an even more thorough review of its reserves. And while it doesn't expect anymore major announcements, it held out the possibility of further restatements. And after the past two months, many investors are beginning to expect bad news.
Jim Zarroli, NPR News, New York.
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