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From 19 January 2004: Financial Times: Shell suffers another blow to its pride

By Joanna Chung in London

Published: January 19 2004 20:14  

Royal Dutch/Shell, which slashed its reserves estimates this month, suffered another blow as it emerged it sold its stake in an oil field that could be one of the finds of the year.

Shell sold its 50 per cent interest in the Rajasthan Basin in western India to Cairn Energy, the UK independent, for just $7.25m in September 2002.

On Monday, Cairn Energy’s shares shot up 49 per cent after it announced “a significant discovery” that could be worth 75 times as much.

Kevin Hart, Cairn’s finance director, praised the work Shell had done in setting up the site. “Shell did a wonderful job of negotiating with the government,” he told a conference call for analysts. The find is one of the biggest in India and could be one of the largest in the world this year, analysts say.

Cairn said initial estimates for the oil in place for the N-B-1 onshore well ranged from 450m to 1.1bn barrels.

Estimates of the quantity of oil that could ultimately be recovered range from 50m-200m barrels.

Merrill Lynch analysts estimated in a report that the net present value of the reserves to Cairn was $140m-$560m.

Shell surprised investors on January 9 by cutting its estimate of proved reserves by 20 per cent, after recategorising wells in Nigeria, Australia and elsewhere. Some shareholders called for Sir Philip Watts, its chairman, to resign.

The Rajasthan well has yet to be appraised and Cairn stresses that the process is in its early stages.

Even by conservative estimates, the find could double the size of Cairn’s portfolio. It currently has 87m barrels in total reserves.

Bill Gammell, Cairn’s chief executive, said: “One could go a lifetime in the oil industry and not be as lucky as we have been.”

Cairn, which has expanded from its roots in the North Sea, has been steadily building its position in India and Bangladesh. Investors had been hoping for tangible results in Rajasthan where Cairn has been pursuing an extensive exploration programme.

The company plans to drill at least two other similar prospects in the area.

ONGC, India’s state oil company, has the right to 30 per cent of any of the development that may stem from commercial discoveries in the area.

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