Reserves shock hammers Shell

By ROBERT LEA
Updated:

 

ENERGY giant Shell today stunned investors by revealing it has overstated its oil and gas reserves by 25%,

In a shock announcement to the Stock Exchange, which wiped nearly £3bn from the market value of the Anglo-Dutch group, Shell said it is 'recategorising' 3.9bn barrels of oil, or barrel equivalents of gas, that it previously said were 'proved reserves'.

That is equivalent to one-fifth of Shell's officially classified oil & gas reserves. The company further admitted it had been over-booking the reserves since 1996.

The news sparked frantic share trading and the stock slumped 29 1/2p, or more than 7%, to 371 3/4p.

The decision to re-categorise many of the assets on its books came after a review of its portfolio in 2003. It found many of its interests did not make it above the strict US Securities and Exchange Commission definition that for a reserve to be 'proved' it has to have 'reasonable certainty' of being technically and commercially produced.

The review also found that many of its projects did not reach internal definitions of a 'proved reserve' that it should have 'final investment decisions' go-ahead to launch production.

About half of today's reclassified assets cover its interests in the massive Gorgon natural gas reservoir off Western Australia and thousands of small, onshore fields in Nigeria.

Australian energy experts said they were 'quite frankly amazed' that Shell had booked its Gorgon interests as long ago as 1997 when even now the company has not given the project the go-ahead.

Shell executive Simon Henry said no managers responsible for the overbookings would be disciplined. 'It is inherently a question of judgment and at the time of the original bookings the definition of reasonable certainty was correctly interpreted,' he said. 'They acted in good faith and exercised their best judgment.'

Shell, headed by chief executive Sir Philip Watts, said the re-categorisation would not lead to any restatement of financial results and would not affect production plans. It expects most of the reserves will be re-classified as 'proved' in the future.

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