Wednesday, December 29, 2004
Shell to pore over oil reserves audit
James Boxell / London December 29, 2004
Senior executives at Royal Dutch/Shell will next week begin poring over the details of their latest oil reserves audit as they look to safeguard their futures at the Anglo-Dutch energy group.
Jeroen van der Veer, chief executive, has warned that his “head is on the block” if the company fails to get to grips with how it books its reserves after the “well-by-well” audit, which has been conducted alongside Ryder Scott, the independent US reserves specialists.
The position of Malcolm Brinded, Shell’s head of exploration and production, is also under threat.Shell and Ryder Scott were expected to complete the audit by the end of 2004.
Shell’s senior executives will examine the new reserves audits next month before providing an update with their fourth-quarter results in early February or earlier if the information they gather is market-sensitive.
Shell was forced to cut its level of proved reserves by 23 per cent this year, which led to the departure of its three top executives, class action lawsuits and investigations by US and UKregulators.The scandal also led to speculation that Shell was a possible takeover target for rivals such as Total of France.
However, while the company claimed it had solved the reserves problems under new management, Brinded revealed in October that more cuts would be needed an admission that overshadowed the historic merger of Shell’sDutch and British holding companies.
He said 8 billion of its 14.35 billion barrels of oil and gas reserves had been rechecked and that 900 million barrels could be cut from the total.
The company has spent the rest of the year re-examining the remaining 6.35 billion barrels and warned that further revisions might be made.
Van der Veer has postponed the annual meeting and annual report by two months until June to allow time to make cuts to previous years’ figures.
He has also promised to provide greater clarity on how the company calculates its reserves. “Next year [2005] we will tell the outside world more about our booking rules, guidance and verifications,” he said.
Analysts have raised concerns that the continued reserves downgrades could hit Shell’s oil and gas production, which is already expected to fall next year at the same time as its rivals should see growth. Analysts say the problems at Shell run much deeper than the booking of reserves.
They say the bigger worries are how it finds new oil and gas, arrests the decline in production, and avoids cost overruns on large-scale projects.