Bloomberg: Shell Replaced 124% of Oil, Gas Pumped Last Year (Update1)

By Fred Pals

March 17 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company by market value, replaced 124 percent of the oil and natural gas it pumped last year with new discoveries.

The so-called reserve replacement ratio fell from 150 percent in 2006, The Hague-based Shell said today in a statement distributed by PR Newswire. The figure excludes acquisitions and divestments and was calculated according to U.S. Securities and Exchange Commission standards. Shell replaced 109 percent of reserves including year-end price effects.

“We have made considerable progress with access to resources,” Chief Executive Officer Jeroen van der Veer said in the statement. “In a world where there are concerns about energy supply and climate change, we are making real progress with positioning the company into new heartlands.”

Output fell for a fifth consecutive year after the company ceded a stake in Russia’s Sakhalin-2 venture and militant attacks in Nigeria kept fields off line. Shell plans to “rejuvenate” production through so-called unconventional projects including a gas-to-liquids venture in Qatar and oil sands fields in Canada. In 2006, Shell added to proven reserves for the first time since 2002.

Fines, Settlement

Four years ago, the producer said 41 percent of the reserves on its books had been improperly recorded. The announcement triggered regulatory probes in the U.S. and the U.K., $151.5 million in fines and the ouster of three executives. On March 6, Shell agreed to pay $89.5 million to settle a lawsuit by U.S.-based investors and raised its total payout in a European settlement to $470 million.

The company added 1.4 billion barrels of oil equivalent to its non-proven resources, which now total 66 billion barrels, it said in the statement. The 10 billion barrels of oil equivalent under construction will add about 1 million barrels a day of production, Shell said.

Total net reserves were 11.9 billion barrels of oil equivalent at the end of 2007, unchanged from 2006.

BP Plc, Europe’s second-largest oil company by market value, said Feb. 27 it replaced 112 percent of oil and gas output last year, while Exxon Mobil Corp., the world’s biggest oil producer, replaced 76 percent. Chevron Corp., Exxon Mobil’s main U.S. rival, replaced 10 percent to 15 percent of output, the company’s worst result since 2001.

SEC Rules

Under SEC guidelines, energy companies can’t classify discoveries as proven reserves unless they have committed to invest in the field, year-end prices are high enough to make the project commercially viable, and existing technology is capable of extracting the petroleum.

Shell’s full-year oil and gas output, including oil sands, fell to 3.32 million barrels of oil equivalent a day in 2007, from 3.47 million barrels a day a year earlier, the company said Jan. 31. It had previously forecast production of 3.3 million to 3.5 million barrels a day.

Shell’s fourth-quarter net income climbed 60 percent to $8.47 billion, boosted by crude prices that approached $100 a barrel last year. Profit excluding inventory changes and one-time items missed analysts’ estimates.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected]

Last Updated: March 17, 2008 03:54 EDT 

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