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Financial Times: In real world Shell is not shrinking

Financial Times: In real world Shell is not shrinking

By Peter Odell

Published: May 1 2004 5:00 | Last Updated: May 1 2004 5:00

From Prof Peter R. Odell. 

Sir, Your energy correspondent’s critique of Shell’s “overbooking” of reserves and her portrayal of the company as “in danger of falling off a cliff” goes far beyond the realm of reality (“Worrying problem of the shrinking Shell”, FT Money & Business April 24-25). Shell depends on its own reserves for only 30 per cent of its global oil sales. For the other 70 per cent it relies on crude oil and oil products either purchased from state oil companies around the world or bought on the traded markets in London, Singapore and New York.

Both BP and ExxonMobil do exactly the same. Indeed, they have no other options as no less than 85 per cent of the world’s proved reserves of oil (currently at an all-time high and giving a reserves to production ratio of 45 years) are owned and controlled by state companies!

This situation is unlikely to change significantly so that the private sector international oil corporations are obliged to work on the fringes of upstream activities, while offering global-scale refining and marketing services which are not – and, indeed, cannot be – challenged by the national companies to more than a minor degree.

In this real-world context Shell is not “shrinking” – and neither are BP and ExxonMobil. On the contrary, in spite of a low 1.2 per cent a year increase in the global oil market over the past decade, the companies have prospered; particularly since the large increases in product prices since 1999.

Given this situation, Shell’s apparent failure to meet the antiquated set of rules required by the US Securities and Exchange Commission for defining reserves constitutes little more than a modest embarrassment; and one, moreover, that could turn out to be short-lived as the normal “appreciation process”, whereby reserves in previously discovered fields are enhanced on a continuing basis for up to 20 years, takes effect. The last laugh may well be on those who have ignored this phenomenon.

Peter R. Odell, London N1 2PB (Professor Emeritus of International Energy Studies, Erasmus University, Rotterdam)

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