FT.com: SEC to probe Shell's reserve cuts

By Carola Hoyos in London

Published: February 19 2004 19:11 | Last Updated: February 19 2004 19:11  

The US Securities and Exchange Commission on Thursday launched a probe into why Royal Dutch/Shell, Europe's second largest energy group, had to cut its proved oil and gas reserves by 20 per cent.

The decision comes as Shell faces further scrutiny about other mistakes it made in "booking" its oil reserves with the SEC, including underplaying the discovery of its huge Gorgon gas field in Australia.

Shell included the Gorgon field as a revision, rather than a discovery, when it filed it with the SEC. Analysts said it was one of the reasons they overlooked the fact that Shell had booked the field in 1997 at a time when it was still far from being ready to be developed.

One said: "When a field is booked for the first time, the reserves are allocated to the SEC category 'extensions and discoveries'. Subsequent adjustments - because of better understanding of the field or new technology - are allocated to the 'revisions' category."

Walter van de Vijver, Shell's head of exploration and production, admitted the company had mis-classified Gorgon with the SEC. He said: "Let's be real about it - it's a bit of an embarrassment, what happened."

He explained that Shell Australia had booked part of the field as probable - meaning it had more than a 50 per cent chance of being developed - internally in 1994 and later recognised it internally as proved. "That revision, which we did in Shell Australia, unfortunately rolled up in a revision in the group filing [to the SEC], rather than as the proper new extensions and discoveries," he said.

Shell's mistakes have been highlighted because neither ExxonMobil and ChevronTexaco, Shell's partners on the Gorgon project, have booked the field as proved with the SEC.