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Shell wipes 120m more barrels from reserves

The Scotsman: Shell wipes 120m more barrels from reserves

Posted 25 May 04

Key points
• Downward revision is fourth this year
• Firm’s reserves 4.47bn barrels lower than thought
• Company subject of probe by US watchdog

Key quote
“I am assuming this is the final drawing of the line under it [the restatement scandal]” – Brendan Wilders, Oriel Securities analyst

Story in full: CRISIS-HIT oil giant Shell has trimmed a further 120 million barrels from its proven reserves – the fourth revision it has made this year to the figure.

The Anglo-Dutch firm sparked a dive in its share price when it warned in January that it had overbooked its proven reserves of oil and gas.

As the scandal – which has to date cost three senior Shell executives their jobs – rumbles on, the world’s third-biggest oil company said it was now saying its 2003 reserves would be 4.47 billion barrels of oil equivalent (boe) lower than originally thought. That is 120m boe more than Shell indicated in April.

Shell said the latest downgrade related to the way it recognised holdings in Canada and was due to accountancy policy changes. It added that the revision would have no impact on its reported cash flows.

The oil group has had to subtract an amount from its proven reserves in Canada to account for royalty payments to mineral rights holders in the country – a policy it already uses in the United States.

However, there are likely to be further fears from investors over what else the company may spring on them as it battles to restore its tattered reputation.

Overall, Shell has now revised down its reserves by 23 per cent since it made its initial estimates in 2002.

Jeroen van der Veer, who took over as chairman from the ousted Sir Philip Watts, said in a statement that auditors had given “unqualified audit opinions” for the latest numbers.

Brendan Wilders, an analyst at Oriel Securities, said: “I am assuming this is the final drawing of the line under it [the restatement scandal].”

The company also said it would publish its delayed annual report on Friday, after shelving the original publication while it concluded an internal inquiry into oil and gas reserve cuts. Shell also said its investigation by US regulator the Securities and Exchange Commission was continuing.

Shell spooked investors in January when it announced it was slashing its proven oil and gas reserves by 20 per cent. Further smaller reserve cuts followed and while not as dramatic as the first one, have dealt further blows to shareholder confidence.

Among the corporate casualties left in the wake of the shock January announcement were chairman Sir Philip Watts, oil and gas chief Walter van de Vijver and chief financial officer Judy Boynton. Regulators in both the UK and the US are investigating the reserves bungle and the company also faces the prospect of a slew of class action lawsuits in the US and the threat of criminal charges against the board.

Mr Van der Veer said the latest restatement reflected a “stricter adoption of some specific accounting standards” after talks between the group and America’s Securities and Exchange Commission about its financial statements.

Crispin Odey, who runs London-based hedge fund Odey Asset Management, remained sceptical on prospects for oil majors, despite soaring crude oil prices which have enabled companies such as BP and Shell to report bumper profits.

Mr Odey said the Shell scandal had raised questions about reserves accounting throughout the whole industry.

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