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Daily Telegraph: Shell keeps schtum on the three Rs

By Damian Reece, Head of Business
Last Updated: 6:47am GMT 29/01/2008

Reserve replacement ratio. Three words to make the eyelids droop – unless you are part of the oil industry. The three Rs are an oil chief executive’s virility symbol, a measure of how much bigger and healthier his company is compared to rivals. With crude having nudged record levels, oil companies can’t pump fast enough. But what matters for their futures is how much oil they’ve got left in the ground.

This ratio is closely watched by investors looking for long-term value in oil companies and is why Royal Dutch Shell’s decision to delay data on its RRR has raised eyebrows. There is no accounting requirement that says Shell must release RRR data along with its profit figures. Some companies do, some don’t. But Shell has always done so in the recent past, and the City liked the transparency of having all the figures in the open on one day. Even companies that prefer to wait until after they’ve published their results (the time-lag is usually due to the need to reconcile UK and US accounting practices) will often give the market a decent steer. But it would appear that Shell will say nothing. And when there’s an information void, there is rumour.

Some analysts are starting to speculate that the reserve replacement could be pretty weak. While Thursday’s fourth quarter profits figures are expected to be up about 6pc, it has been a tough year for Shell. The company has had to give up a large chunk of reserves in Sakhalin to Gazprom, and there has been severe disruption to operations in Nigeria. Following the reserves fiasco in 2004, when Shell misstated how much oil was in the ground, the company has been investing like mad in a bid to restart growth.

That scandal also makes this latest decision all the more odd. Shell’s capital spending bill this year will be $27bn, perhaps the most of all the independent oil majors. The company is, then, arguably under most pressure to come up with a decent RRR.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/29/ccom129.xml

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