Introduction by John Donovan: 2 January 2009
Comments made by Iain Percival, the retired Royal Dutch Shell Global Chief Petroleum Engineer, sparked a high quality debate on our Shell Live Chat facility that is worthy of publication as an article.
Iain worked for Shell from 1973 – 2006 except for one year 1975 – 1976 during which he attended the Heriot-Watt University in Edinburgh following the (then) MEng (Petroleum Engineering) programme.
His final position in Shell from 2003 – 2006 began as Global Head Hydrocarbon Maturation and was quickly changed to Global Chief Petroleum Engineer. Iain was deeply involved in the follow up activities resulting from the reserve recategorisation and resultant process improvement, so few people are as qualified as he is to make expert comment on such an important event in Shell’s history: it led to the unification into a single company, Royal Dutch Shell Plc.
Paddy Briggs, the former Shell executive who also participated in the debate, had a long distinguished career with Shell, which included a leadership role in the worlds largest re-imaging programme at over 38,000 Shell stations worldwide.
on Dec 31st, 2008 at 12:00 pm
So – the SEC have now adopted new rules on reporting of hydrocarbon reserves and in doing so recognising the advances in technology used by the Shell petroleum engineering community to which I belonged for many years. In other words we had the confidence based on modern technology and our professionalism to call the volume proved. It is no surprise that the vast majority of the volumes were were obliged to recategorise is back in the proved category and would not have moved under the revised SEC rules. What a shame for all of us (especially the pensioner community) that the SEC had not spent more time overseeing the genuinely corrupt & greedy financial community instead of beating up the corrupt & greedy Shell EP business. At least Shells misery has led to reserve rule revisions which will benefit all those wishing to invest in EP companies. Infact, I can state that Shell has been proved to be an industry pathfinder (again) inspite of all the opprobrium heaped upon it.
on Dec 31st, 2008 at 5:54 pm
Iain, with both Brent and WTI both under $40 the SEC rules still wont allow too many barrels of shale oil or tar sands to be booked. And at the risk of repeating what has been said many times: the SEC rules do not pretend to give an accurate estimate of technically/economically viable reserves, but only a clear set of rules to allow the reserves figures of one company to be compared with another. Annual reports dont give an exhaustive financial analysis either, but use a uniform set of rules (GAAP) to ensure a degree of consistency between companies. That doesnt mean the numbers are right – just consistent. As a PE I would also almost certainly differ from the SEC figures in making technically sound estimates. But the SEC does not pretend to produce technically sould estimates, just consistent, comparable numbers, prepared according to a uniform set of rules.
on Dec 31st, 2008 at 6:35 pm
Have to generally agree what Iain has said, some of which I have voiced earlier. I never realized that the SEC rules for reserves calculation were just for company to company comparison. If true then what a idiotic group the SEC are and the reason why companies such as Shell got nailed with the reserves scandle in 2004.
on Dec 31st, 2008 at 11:47 pm
Dear Guest – I have no problem with your comment; infact I agree with it. The SEC uniform set of rules to which you refer will now reflect the technologies and techniques of the 21st Century instead of those of the early part of the second half of the 20th. All EP companies will estimate and report accordingly – to the ultimate benefit of the investor community. As I wrote in my previous posting this notable advance is a direct result from the trials and tribulations of Shell and the so-called great reserves scandal. I use the term so-called because if all the volumes recategorised had vanished like the money of those investing with the unsupervised, unregulated Madoff, the word scandal would be justified. However the volumes have not vanished inspite of the tsunami of bogus indignation which washed over the company and the many affected employees. I wish all who contribute and read the contributions on this site a very Happy and spite-free New Year
on Jan 1st, 2009 at 11:20 am
The reserves issue was a scandal not because there was confusion about the categorisation of hydrocarbon reserves. It was a scandal because at the very top of Shell there were lies, cover ups, disingenuous public statements, obfuscation and deceit. The revelations about all this led to further disclosures about the management style of Phil Watts and others in the command chain. Those of us who worked for Shell in the Watts era were not surprised at what emerged we knew him and some of his cohorts for what they were. It was a scandal alright!
a fellow pensioner
on Jan 1st, 2009 at 11:44 am
Good analysis but a bit lopsided and I must react! Of course you are totally correct that the SEC was way behind modern technology and is now making some amends. But to conclude that Shell EP has been an industry pathfinder and somehow the whole world has erroneously dumped on Shell goes a bit too far. I know you very well and I am convinced that your words come from your heart and were not drafted by some Shell PR spindoctor. But you know that we started to lose the battle around the mid 90s on technology development. Until that time we were very good at inventing new technology, a bit less at implementing it quickly and globally and we dithered perhaps a bit longer than really needed. And our internal bureacracy could also be a bit improved at that time. And we were by far the biggest operator in the world and as such earning the money for many of our competitors. We outperformed many (most?) from the early 70s to the mid 90s. But after the mid 90s, all had to be changed in a major way and we lost basic business controls and created a new attitude in the workforce whereby short term views prevailed, promise was better than performance, open communication was a thing of the past and the ensuing cultural revolution led to many disasters. The breaking of SEC rules was just one of them and in my view a minor one but this point was magnified by everyone. It was fodder for the lawyers and easy to find a culprit that could be sacrificed. But there was something bigger going on behind the scenes, less obvious to the general public. We all know (and you certainly better than anyone) that companies like Schlumberger have a lot more know-how and technology development than we have. They stole with pride our systems and enhanced them. And then they applied them too! With all the internal turmoil and american political correctnesss flying about, we lost focus and have forgotten how to find and develop new oil and gas in an economic manner. We lost the ability to consistently do giant projects well. Very few are on time and within budget, certainly not 50 % over and 50% under the objectives. You know that the personal greed has exploded and there is little coherence in the company anymore. We used to have the top people near the coalface, now we have a small group in the headoffice and many processes. But we have no real feel of the local conditions anymore.
But having said all this, you are right again that the SEC now themselves should be doing some major mea culpa for not overseeing the real criminals in the finance world. Our beloved leader of the past, the borne again christian Philippus Watts, would have made a great investment banker. And he will still occupy a seat next to the likes of bishop Mugabe in his afterlife. And it will be hot there! He was like the present bankers who sold crap and did not even want to know what was in the boxes they sold. It all tumbled when someone opened a box and saw it was empty. In Shell that someone was v.d.Vijver or perhaps Coopman. And like in the finance world it was the messengers that got sacrificed!
Apologies for the long reply, but some very bad things happened (and are happening still, just check with your dutch colleagues who are retired and how their pensionfund has been doing) and these things should not be swepped under the carpet.
And I wish you and all the readers here a very healthy and prosperous 2009 and hope the Donovans continue with this fantastic forum of REAL open discussion. But I still fear Shell, so I shall remain anonymous!
on Jan 2nd, 2009 at 8:32 am
Dear Fellow Pensioners (includes you too Paddy as we are all in the same boat!)- I have a couple of (final?)comments. To pick up on the right on the nail comments from fellow pensioner the real scandal in Shell EP has been the departure from the tried and tested practice of only having people at the top (leaders) who actually knew the nuts and bolts of the EP business. This started with the disastrous decision to appoint Cor (if you need geology go to Schlumberger) Herkstroter to the top job. He oversaw the destruction of a E&P organisation which was second to none, the envy of its peer group and a source of pride to all of us working in it. This massive error was compounded by importing huge numbers of US staff totally clueless as to the way the business worked in the many operating units of the world and were typified by an astonishing focus on their year end performance bonus requiring a declaration of success long before the final result was actually known. The modus operandi quickly became one of preaching from on high, intolerance of questioning (its my way or the highway) and a continual reference to a number of management guru bibles – US author only, please. (We were not to know then, but it was all terribly prescient of the US Iraq misadventure). Remember, Mission Accomplished – all Hype, Hypocrasy & Hyperbole with Honesty and Humility totally absent. PE (petroleum engineering) became Powerpoint and Excel.The virtue and necessity of time consuming solid technical work became a luxury the company could not afford! Ten years on a massive effort has been expended to recover the situation – but of course in the meantime so much has been lost. That is the real scandal. I will never be an apologist for the truly dreadful Watts and his acolytes but in my more generous moments I honestly believe they did not fully understand what they were doing. I once asked him not to use the expression economic reserves; by definition reserves ARE economic and the look he gave me was one of what on earth are you talking about?. I will leave the matter there but continue to grieve for the company that lost its way.
DEBATE ENDS (UNLESS ANY FURTHER COMMENTS ARE POSTED.
Finally, a comment posted on Christmas Day by Paddy Briggs which we much appreciated…
on Dec 25th, 2008 at 2:54 pm
Happy Christmas to you as well John. It is no exaggeration to say that this website is one of the most significant on the internet in holding a Corporation to account. For years now we have seen what happens when corporate greed and power goes unchecked just this week with the $50billion Madoff scandal and of course the sleazy history of Lehmann Brothers, Enron and all the other supposedly great companies brought to their knees by incompetence and director greed.
Director greed is alive and ill in Shell as well – as this website has demonstrated over the years. To those of us who worked for a corporation which, whilst certainly not run by Saints, was at least manned in the main by people you could trust and respect it is all very depressing. It is now clear that the Watts reserves saga was in some respects the tip of the iceberg and there are undoubtedly those amongst Shells current leaders and amongst the recently retired who ought to be brought to justice as, of course, should the ineffable Watts.
Your website makes a major contribution to keeping the eyes of the world on what Shell does. Your success is remarkable and I have no doubt that Shell takes note of the chat and the postings on this site. Whether they will actually institute the internal reforms they should under their new Swiss head cheese remains to be seen. Then certainly should!