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The Observer: Shell to write off half of last year’s reserves (*The bad news we predicted was in the pipeline)

Tim Webb 
Sunday March 16 2008  

Shell is to slash reserve figures from last year by more than half, taking about 1.3 billion barrels of oil off its books, equivalent to about a year’s production.

Chief executive Jeroen van der Veer is also expected to say that production growth will be zero or near zero until 2010 when he gives the oil giant’s annual strategy presentation tomorrow.

The City has been particularly sensitive about this issue ever since Shell mis-stated its reserve figures in 2004. The company was forced to pay out more than £200m in fines and compensation to settle the scandal.

This time Shell will have to write down its booked proven reserves because of problems in Russia and Nigeria and changes in the way its production contracts are structured. It is also becoming more expensive to find new fields.

The company is expected to take at least 200 million barrels off the estimates for its Nigeria operations, where rebels have destroyed many of its facilities. Shell’s joint venture with the Nigerian government is also paralysed because of a lack of investment and rising taxes.

Another estimated 1.1 billion barrels will be lost from the $20bn Sakhalin II joint venture after Shell was forced to sell part of its stake last year to Russian gas giant Gazprom. More reserve cuts will come in production-sharing agreements with governments in Asia and elsewhere in Africa.

The reserve replacement ratio is expected to fall to about 80 per cent. This means that for every 100 barrels of oil the company produced last year, it found only 80 new barrels to replace them.

Jon Rigby of UBS said that Shell’s reserve and production figures would improve after 2010 when big projects came on stream.

This article appeared in the Observer on Sunday March 16 2008 on p1 of the Business news & features section.

(Headline comment in brackets added by John Donovan)

Related articles confirming we were expecting a major announcement

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‘Is this the beginning of the end of Shell?’ and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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