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Financial Times: Shell lobbies to book unconventional reserves

By Dino Mahtani
Published: February 23 2008 02:00 | Last updated: February 23 2008 02:00

Royal Dutch Shell, Europe’s largest oil company, is pleading with US regulators to ease rules to allow the company to book oil and gas reserves from unconventional sources such as its Canadian tar sands.

Under US Securities and Exchange Commission rules, oil companies are only allowed to book reserves from oil and gas finds that are considered readily available to tap or from “conventional” sources, which do not include tar sands, normally classified as a mining operation.

The company is expected to announce a set of figures showing barely positive reserve growth when it announces its reserve replacement guidelines next month.

Shell is keen to boost its reserve figures by adding in unconventional sources of oil and gas.

The company said it had sent a letter to the SEC this week in response to an SEC-led consultation asking for proposals to revise reserve disclosure requirements.

In spite of Shell’s record end-of-year profits for 2007, shareholders remain concerned about whether the company’s long-term strategy of turning to technologically advanced and unconventional projects such as tar sands and gas-to-liquids projects, will pay off.

Shell’s shareholders are sensitive to the company’s reserve replacement guidelines after a reserves booking scandal that rocked the company in 2004.

That episode prompted the sacking of three senior executives, regulatory probes, lawsuits and $150m (£76.2m) in fines.

Shell’s reserves figures are set to suffer because of the effects of stripping out potential reserves from its Sakhalin-2 joint venture, in which the company was forced into signing away a majority stake to Russia’s Gazprom.

High oil prices are also likely to affect Shell’s reserve guidance, because production-sharing agreements, which mandate a fixed-cost recovery scheme, necessitate lower production at higher oil prices, affecting the amount of reserves that can be booked.

Many oil companies are struggling to book strong reserve replacement rates and are keen to revise SEC rules.

Earlier this year, Shell said it had found about 1bn barrels of oil equivalent to add to its resource-base last year, although that figure is different from the definition of proved reserves accepted by the SEC.

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