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Daily Telegraph: Shell likely to miss Canada tar sands

By Russell Hotten
Last Updated: 1:48am GMT 03/03/2008

Hopes that Royal Dutch Shell would be allowed to include oil reserves from a huge project in Canada in time for a major strategy announcement later this month have been dashed.

This will disappoint the City and raise concern about the Anglo-Dutch giant’s ability to grow profits from its multibillion-pound expansion into unconventional sources of oil such as Canada’s tar sands fields.

Shell’s oil and gas reserves have been a sensitive issue since the 2004 scandal when Shell booked more assets than it actually had.

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Shell is due to update investors on March 17 and wanted to include tar sands as part of its asset base. The company needs permission from America’s Securities and Exchange Commission, which, according to one source, has been “watching Shell like a hawk” since 2004.

Shell now accepts that any permission will not be in time for the update. It means that Shell’s reserve replacement ratio – the rate at which it is replenishing the fuel being pumped – will be weak.

Shell’s replacement ratio is expected to be just above 100pc – meaning that it is barely replacing the crude being brought to market. Last week BP announced a replacement ratio of 112pc.

Investors were nervous about Shell’s reserves figure because the company must strip out potential assets from Sakhalin-2. Last year, Shell was forced to sign away a majority stake in the project to Gazprom. Then, in January, Shell surprised investors by delaying the announcement of its replacement ratio. An oil analyst said: “Shell got us all worried by January’s delay, and it’s been a bit of an issue ever since. The bottom line is: Shell needs to give some good news on reserves, and now probably won’t.”

With the discovery of so-called “easy oil” drying up, Shell has led the way in the search for unconventional sources like tar sands and oil shale. Canada is rich in tar sands, but turning it into usable oil is expensive and fraught with problems.

The SEC has so far refused permission for Shell to book tar sands, believing that there is a high risk of projects failing.

In a statement, Shell said: “We can confirm that we have written to the SEC in response to their December 2007 consultation on possible revisions to disclosure requirements relating to oil and gas reserves. We welcome this process as recognition of technical advances made by our industry in respect of unconventional sources of oil and gas. It is our belief that developments in our industry mean that current regulations are no longer aligned with our business environments.” The SEC did not return calls.

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/03/03/cnshell103.xml

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