Bloomberg.com: Shell Booked Angola Reserves Over a Year Before BP (Update3)

Posted 27 April 04

April 26 (Bloomberg) -- Royal Dutch/Shell Group, Europe's second-largest oil producer, recorded reserves from an Angolan field more than a year before partner BP Plc as the Anglo-Dutch company tried to make up for deteriorating oil and gas holdings.

Shell booked some reserves as proven from the Greater Plutonio project before 2002, spokesman Simon Buerk in London said by telephone. Field operator BP gave final approval to the plan in February 2003 and recorded reserves at the end of that year, said Toby Odone, a BP spokesman in London.

``Shell's reserve-booking policy will be under the spotlight going forward,'' said Jason Kenney, an oil analyst at ING Financial Markets in Edinburgh, Scotland. ``Any disconnect between its booking and partner booking is open to scrutiny. I doubt that they will be pre-empting partners with booking significant reserves at new fields in future.''

Shell, based in London and The Hague, on Jan. 9 surprised investors by reducing proved oil and gas reserves by 20 percent, leading to probes by the U.S. Securities and Exchange Commission and Justice Department and the ouster of then-Chairman Philip Watts, 58, and the head of oil and gas, Walter van de Vijver, 48. More than 12 shareholder lawsuits have been filed.

Shares of Shell Transport & Trading Co., which represents 40 percent of the Shell group, have lost 3.5 percent in London since the first cut in reserves on Jan. 9, compared with a 10 percent rise at BP. Today, Shell shares gained 0.1 percent to 387 pence. BP slipped 0.6 percent to 488 pence.

In addition to the reserves in Angola already booked, Shell recognized more after making a final decision to invest in the Greater Plutonio project in June 2002, Buerk said.

Rollback

``A portion of our reserves entitlement was booked as proved reserves in 2002,'' he said. ``This was in addition to some proved reserves that were booked prior to 2002. These reserves will be part of the restatement rollback in line with SEC regulations.''

On April 19, Shell cut its reserves for a third time, saying 4.35 billion barrels, or about 22 percent of 2002's total, had been wrongly recorded with the SEC. A Shell review released then said the company had been able to make ``aggressive'' estimates because internal controls were deficient.

Watts and Van de Vijver left the company last month in connection with the misstated reserves. Van de Vijver in 2002 had expressed concern about reserve bookings in Angola, according to the Shell investigation released a week ago.

Showstoppers

A Feb. 11, 2002, note from Van de Vijver to other senior Shell executives said changes in SEC rules may ``expose'' 1 billion barrels of reserves in Angola, Norway and other nations, where ``potential environmental, political or commercial `showstoppers' exist'' that threaten the projects, according to the Shell investigation.

John Dowd, Van de Vijver's attorney with the Washington law firm of Akin Gump Strauss Hauer & Feld LLP, said in an April 19 statement that Van de Vijver had been ``persistent'' as of February 2002 ``that prior reserve booking practices may have been too aggressive and that the full extent of the issue had to be examined.''

Asked to comment today, Dowd said in an e-mail the Angolan field was booked ``before July 2001,'' the month when Van de Vijver took over from Watts as head of Shell's oil and gas unit. ``It was booked prematurely but recognized later,'' Dowd said. He wouldn't comment further in a telephone conversation.

Angolan Barrels

Watts hasn't commented publicly since he left the company. His lawyer, Joseph Goldstein of Crowell & Moring LLP, declined to comment when contacted Friday.

While Shell plans to remove some Angolan oil from its reserves, the company hasn't specified how much. Buerk said April 8 that Shell had booked less than 100 million barrels as proven reserves in Angola as of the end of 2003. BP's Odone wouldn't specify how much oil the company had booked from the project or in Angola.

BP and Shell each own 50 percent of the Greater Plutonio project in Angola's Block 18, in which Shell agreed earlier this month to sell its stake. BP, Europe's largest oil and gas company, operates the deepwater Angolan field, which may produce oil in 2007 after an investment of $2 billion to $3 billion, the U.S. government has reported.

Leaving Angola

BP, Exxon Mobil Corp., Total SA, Eni SpA and other oil companies are spending billions to tap fields in Angola, Africa's fourth-largest holder of reserves, after Libya, Nigeria and Algeria. Shell is focusing on Nigeria, where it's the biggest foreign oil producer.

``Angola is an area for Shell were we don't have critical mass,'' Buerk said. ``Shell is committed to continuously upgrading its portfolio.''

Shell's reserve cuts have highlighted other differences between companies in booking reserves. Companies annually report proven reserves to the SEC to show ``with reasonable certainty'' how much oil and gas can be recovered.

Last month, Shell reduced its estimate of reserves at a field offshore Norway, Ormen Lange, because part of what it was going to count didn't ``strictly follow'' SEC guidance. BP estimates that about 85 percent of its stake in the field counts as proved reserves, according to SEC filings by the company.

Shell on April 8 said it agreed to sell its stake in the Angolan venture for $600 million to Oil & Natural Gas Corp. of India. The sale will leave Shell with only one project in Angola, a 15 percent stake in another area, Block 34.

To contact the reporter on this story:

Alex Lawler in London alawler@bloomberg.net.

To contact the editor on this story:

Tim Coulter at tcoulter@bloomberg.net

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