Financial Times: Call for oil giants to detail fields
By Carola Hoyos in London
Jan 12, 2004
FRONT PAGE - COMPANIES & MARKETS:
Ratings agencies, analysts and shareholders have called for Royal Dutch/Shell, the world's third-largest listed oil group, and its rivals to detail fields they have classified as proved.
The scrutiny follows Royal Dutch/Shell's announcement last week that it overestimated oil and natural gas reserves by 20 per cent. The news shocked the industry, sent Shell's shares 7 per cent lower and put the future of Sir Philip Watts, the company's chairman in doubt.
The readjustment appears thus far to be limited to Shell. But lingering fears over whether it could be an industry-wide issue strengthened over the weekend.
Despite all the reassurances from competitors that overbooking was a Shell problem, few industry observers are willing to rule out announcements from other companies or a tightening of the US Securities and Exchange Commission rules.
Wood Mackenzie, the Edinburgh-based independent oil industry consultants, called for further disclosure, adding that a third-party audit of companies' reserves booking might also be called for. "We believe that the current situation points to a need for greater transparency in the reporting of reserves. Questions would undoubtedly have been raised at the time concerning the booking of Australian reserves had a more detailed breakdown been available."
BP, ChevronTexaco and ExxonMobil were quick to assure investors that they would not have to reclassify parts of their portfolio.
Under SEC rules, companies must be reasonably certain the project will go ahead in the short run before accounting for reserves as proved.
But reasonable certainty is a grey area defined by each company, while guided by the SEC.
A Shell shareholder, who said he planned to call for the chairman's resignation in talks with non-executives, agreed. He said: "People would like more disclosure. The Eastern hemisphere is rather a large area."
Standard & Poor's Ratings Services also said it would seek more information from Shell, saying that its examination of proved reserves would "include the past and current procedures for proved reserve booking, the key areas of operations and specific projects that led to the recategorisation, and the impact of the recategorisation on Shell's long-term production profile and related capital-spending needs".
Shell yesterday hinted the company would be open to changes. "We always seek to be compliant. Further regulatory clarification has the potential to be helpful to everyone in the industry," a spokesman said.
But companies may be hesitant to disclose data they see as having strategic value.
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