Reuters: Lawmaker Urges Oil-Reserve Accounting Overhaul: “The cuts by Shell, the world's third-largest energy group, are being investigated by the U.S. Justice Department”

Posted 22 July 04

WASHINGTON (Reuters) - Regulators need to get moving on an overhaul of U.S. standards for valuing oil and gas reserves, a prominent Democratic congressman said on Tuesday.

"The time is past for lengthy study," said U.S. Rep. John Dingell of Michigan, the ranking Democrat on the House Energy and Commerce Committee, in a letter to regulators, in reference to sharp, unexpected cuts by Anglo-Dutch energy group Royal Dutch/Shell Group in its reserve accounts.

"I urge you to undertake a standard-setting project in consultation with the appropriate accounting and energy regulators with all deliberate speed," Dingell wrote in the letter to U.S. Securities and Exchange Commission Chairman William Donaldson, Financial Accounting Standards Board Chairman Robert Herz and Federal Energy Regulatory Commission Chairman Patrick Wood.

The U.S. House of Representatives Financial Services Committee is scheduled to hold a hearing on Wednesday on energy reserve accounting issues.

Dingell asked regulators in May for an update on reserve accounting. He said he was underwhelmed by a seeming lack of urgency in their responses.

"I believe that significant reforms are called for on all of these issues and would urge prompt action on the basis of what is learned in the ongoing civil and criminal investigations," he said in his letter.

Shell made a surprise 20-percent reduction in its proven reserves in January. Natural gas producer El Paso Corp. slashed its proven gas reserves in February by 41 percent.

Reserve accounts are crucial in the energy industry because they tell investors how much oil and gas companies have in the ground to replace what they're already pumping out. The estimates are required to follow established standards.

The cuts by Shell, the world's third-largest energy group, are being investigated by the U.S. Justice Department, the U.S. Securities and Exchange Commission, Britain's Financial Services Authority and the Netherlands' market regulator, AFM. The SEC is also investigating the El Paso Corp. reserve cuts.

Since the Shell cuts, the SEC has been asking energy companies specific questions about their reserves as part of an industry-wide review of reserve accounting.

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