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MarketWatch From Dow Jones Newswires: Shell won’t provide reserves replacement guidance in results

By Benoit Faucon
Last update: 8:44 a.m. EST Jan. 29, 2008

(Adds content of SEC 2006 letters to Shell)

LONDON (MarketWatch) — Royal Dutch Shell PLC (RDSB.LN) won’t provide oil and gas reserves replacement guidance – as it normally does – along with its annual results Thursday, despite its reserves having been an issue in recent years.

Correspondence released by the U.S. Securities and Exchange Commission, or SEC, suggests the U.S. market regulator has continued to pay particularly close attention to Shell’s reserves accounting. In contrast to its closest European oil major rivals, Shell has on more than one occasion been asked by the SEC for additional details.

The company’s fourth-quarter and annual “results will just be financial results only,” a Shell spokesman said Tuesday. “We think the right place to update on reserves is in the annual report (to the SEC), so we will be updating then on the reserves replacement ratio.”

Reserves – a key indication of future production – are a sensitive issue after Shell downgraded its reserves several times in 2004 and 2005, leading to a management shakeup, a share price slump and fines by U.S. and U.K. regulators.

Broker Dresdner Kleinwort said in a research note Monday, “We understand Shell won’t comment on reserves in its (fourth-quarter results) essentially because the reserve replacement has been weak and made more complex by the impact” of Shell’s losing control of the Sakhalin II project last year.

“We regard this as regrettable,” the broker said.

The Shell spokesman said, “This is simply a change in reporting timings and is in line with other competitors.”

Following the series of reserves downgrades in 2004 and 2005, the SEC continued to send letters in 2006 requesting more disclosures on Shell’s bookings, letters posted on the regulator’s Web site show.

Although routine, Shell’s correspondence contrasts with its two largest European rivals, BP PLC (BP) and Total SA (TOT), which didn’t receive questions on their reserves disclosures during this period.

In a letter on Sept. 29, 2006, the SEC asks Shell to “disclose your net proved reserves for (all significant oil and gas) properties.” In a Nov. 2, 2006, reply, Shell said the properties it didn’t detail weren’t individually material enough to be displayed separately.

In this Sept. 29 letter, the SEC also sought explanations for the large revisions to Africa and Asia-Pacific reserves, and to extensions and discoveries in the Middle East, which Shell had recently announced. Shell did then provide these explanations to the SEC – but they haven’t been publicly disclosed.

Then in a Dec. 7, 2006 letter to Shell, the SEC requested more detailed disclosure for changes in natural gas bookings in Africa and Asia Pacific – to which Shell agreed in a Feb. 23, 2007 reply.

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