The Wall Street Journal: Shell Will Take Quarterly Charge Of $330 Million: “reserves-booking scandal this year exposing Shell's need for new reserves”

By MARK LONG

DOW JONES NEWSWIRES

July 2, 2004

LONDON -- Royal Dutch/Shell Group said it will take a $330 million (€270.7million) charge to its second-quarter earnings for unsuccessful exploration on assets inherited in its 2002 purchase of Enterprise Oil. The company also announced the planned sales of a number of downstream assets in the U.S., Peru and Spain, in a move seen as a signal that Shell is following through on intentions to boost returns.

Shell was criticized by some observers as overpaying in its $5 billion purchase of Enterprise, which brought producing and exploration areas in the North Sea, Brazil and the Gulf of Mexico under Shell's aegis.

However, with a reserves-booking scandal this year exposing Shell's need for new reserves and production, and with oil prices remaining high, the acquisition doesn't appear to be such a bad move, analysts say.

Analysts said they weren't concerned about the exploration write-downs. "If you do explore, you do end up writing stuff off," said Brendan Wilders, an analyst with Oriel Securities in London.

Shell said it has exceeded by $55 million its target for cost savings of $300 million from the Enterprise purchase. It added that the acquisition has increased its cash flow by $3 billion.

Shell also said it has sold pipeline assets valued at nearly $1 billion in the U.S. in the past week, including the sale to Buckeye Partners LP of its pipeline system in the Midwest.

Buckeye, of Emmaus, Pennsylvania, bought five pipelines and 25 terminals from Shell for $530 million. Buckeye owns the 4,640-kilometer Buckeye Pipe Line, which stretches from Massachusetts to Illinois and has pipelines in five states.

Last week, Shell sold 3,200 kilometers of refined-petroleum-products pipeline infrastructure to Magellan Midstream Partners LP for $492 million.

The transactions are part of the oil giant's effort to streamline operations to improve efficiency and financial performance, Shell Oil Products U.S. Chief Executive Lynn Elsenhans said.

Proceeds from asset sales this year total $3.5 billion.

Write to Mark Long at mark.long@dowjones.com