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Accountancy Age: Oil giant Shell is facing a a new accounting crisis

Nicholas Neveling, Accountancy Age, 29 Jan 2007

Sakhalin to hit Shell reserves accounting

Shell may be forced to cut oil reserves by a billion barrels after halving stake in Sakhlin joint venture with Russian government.

Oil giant Shell is facing a a new accounting crisis as analysts predict that the oil group will have to cut oil reserves on its books by a billion barrels after the halving of its stake in the Sakhalin-2 joint venture.

Shell was forced to cede its majority stake in the Russian project to state-owned group Gazprom, the Observer reports. The Kremlin pressed Shell into the move and accused the group of environmental and cost mismanagement.

The move will see Shell’s stake in the project reduced from 55% to 27.5%, a 72.7% drop that analysts believe will knock Shell’s booked reserves by approximately 1 billion barrels.

The issue of restating booked reserves is a sensitive one for Shell. Two years ago the company was forced to reduce its booked reserves substantially after the SEC judged that what Shell had booked in its accounts did not meet the watchdog’s regulations.

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