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‘Is this the beginning of the end of Shell?’

An intriguing posting on Live Chat on Monday 3 March 2008

Guest 3513: “It’s interesting that Shell has picked 17th March for a major announcement – it will be St. Patrick’s day and Europe will be shutting down for Easter. Shell seem to have a habit of announcing bad news just before a holiday…The Daily Telegraph article (“Shell likely to miss Canada tar sands”) probably says it all”

Comment by another guest

Guest 1094: I hardly believe that “Europe will be shutting down for Easter” from Monday 17th March !!! Considering most countries work up to and including Friday, I think this is another example of making something out of nothing when discussng Shell.

THE RELEVANT DAILY TELEGRAPH ARTICLE

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

Some interesting postings on ‘Live Chat’: Tuesday 4 March 2008…: 

Guest 8650: The risks and uncertainties of E&P for conventional hydrocarbon resources are well understood – could it be that the SEC is questioning the viability of some of the tar sands projects? The viability of the Colorado shale oil project is now extremely uncertain.

Guest 1176: If Exim and ECGD won’t finance Sak2, then Shell or Gazprom may have to do it themselves – and their cost of capital is much higher… And every other reputable bank will consider carefully the implications of lending to Shell (or charge a substantial premium). If Sak2 cannot get financing, do the same considerations apply to the other big budget projects on which Shell has “bet the farm” (Pearl, Kashagan, Oil Sands…) Is this the beginning of the end of Shell?

Guest 1846: What happens to the economics of oilsands/LNG/GTL project if the cost of capital is 24% – ie the same level as Shell’s published ROACE for Q4 2007? Maybe that is why the SEC has questions about oil sands’ viability?

Guest 1094: I thought the SEC only looked at the producibility of an oil / gas project. They didn’t look at the economics – that is the choice of the company / partners and governments.

Guest 2618: Guest 1094: The SEC reserves definitions include economic criteria and are based on the use of proven technologies – ie oil companies cannot use unproven/unpublished technologies to improve the economics of marginal prospects. Have a look at the *reserves auditor’s reports from the reserves trial published on this site relating to Angola Block 18 and Bonga

*”HIGHLY CONFIDENTIAL”: THE RESERVES AUDITORS REPORT OF DAVIS POLK & WARDWELL TO SHELL GROUP AUDIT COMMITTEE (searchable- 202 pages)

http://www.shellnews.net/classactiondocs/Binder1_405-6_OCR.PDF 

Guest 2984: Thanks for the reference Guest 2618. Can you please point me to the specific reference to economic requirements from the SEC in this very lengthy attachment from 2004 or, more usefully, to the actual SEC document that gives these economic criteria. I still remember that only company economics were used for reserves booking. I do agree however that unproven technologies should not be used.

Guest 683: Guest 2984 see FAS 69 (Disclosures about Oil and Gas Producing Activities). This provides the reporting and accounting rules and reporting formats for (1) proved oil and gas reserve quantities (2) capitalized costs relating to oil and gas producing activities (3) costs incurred for property acquisition, exploration and development activities (4) results of operations for oil and gas producing activities (5) a standardized measure of discounted future net cash flows relating to proved oil and gas

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