Reuters: Shell Cuts Reserves Estimate, Shares Fall  

AMSTERDAM/LONDON (Reuters) - Royal Dutch/Shell Group cut its estimated proven oil and gas reserves by 20 percent on Friday, triggering a share price slide and sharp investor criticism of the Anglo-Dutch firm's management. 

Most top western oil companies are struggling to find new viable fields of sufficient size to replace maturing assets -- seen as crucial to future growth in earnings. 

Yet in recent years Shell, one of the world's top three energy firms, has been seen as the laggard, both in terms of reserve replacement from its own finds and through acquisitions. 

"When it comes to investors, they haven't impressed. There's a lot of mistrust of management," said Canada Life fund manager Paul Jay. 

Rathbones' fund manager Julian Chillingworth said his firm had sold some shares on the back of the reserves restatement. 

Shell came late to the acquisitions spree that saw rivals BP and ExxonMobil make major deals to shore up reserves. Friday's news highlights over-optimism in its home-grown key areas, including Australia's Gorgon gas field, onshore activities in Nigeria, and other unspecified areas in the eastern hemisphere. Shell recategorized 3.9 billion barrels of "proven" oil and gas reserves -- enough to supply world oil demand for 50 days -- as either "unproven" or having "scope for recovery." 

It said this would have no effect on 2003 results, due out on February 5, and that 90 percent of the reclassification was undeveloped. But investor relations head Simon Henry declined to restate the three percent a year output growth ability projection set last year. 

Phil Watts, chairman of the committee of Shell's managing directors, was the director in charge of the core upstream unit from 1997, when some of these reserves were booked as proven. 

He was absent from Friday's conference call with investors, analysts and reporters -- and investors were critical. 

"I'm surprised that Phil Watts is not on this call," said David Cumming of Standard Life. "Given the share price reaction investors will require more explanation in the near future." 

SHELL SHOCK 

Analysts and investors scrambled to assess the damage. Royal Dutch/Shell shares slid 7.6 percent to 38.28 euros in Amsterdam and 7.4 percent to 371-3/4 pence in London by 1555 GMT. 

"This reduces the value of the company by 10 percent using discounted cash flows... Investors will be shocked, as Royal Dutch was usually known for its conservative accounting policy. Our 'add' rating is under review," said Kempen & Co analyst Richard Brakenhoff. 

Later on Friday debt ratings agency Standard and Poor's said it might cut its top "AAA" long-term ratings for the Royal Dutch/Shell group of companies while reaffirming a short-term "A-1-plus" rating, as the reserves announcement had heightened its concerns over the group's level of reserve replacement. 

Among rivals, BP shares were down 1.6 percent at 435-1/2 pence, with a trading statement from the British company which highlighted weak refining margins in the U.S., eclipsed by Shell's shock. 

Meanwhile a spokesman for the world's biggest listed oil company ExxonMobil, which also has interests in Nigeria and Australia, said: "We are very confident in our proved reserves numbers and stand behind them." 

Shares in BG, a smaller British rival long seen as a Shell takeover target, rose temporarily on talk that a buyout was made more likely given Shell's increased need to replace reserves. At 1615 GMT the stock was down 0.27 percent at 276-1/4 

GORGON AFFECTED When oil majors recategorize proven reserves as being unproven, it means that they are no longer as certain of being able to commercially produce the oil or gas. 

The only field named specifically as a problem was Gorgon, an $8-billion Australian gas field in which Shell has a stake, along with Exxon but where U.S.-based ChevronTexaco is the operator and majority stakeholder. 

ChevronTexaco would not comment on whether it had booked Gorgon reserves as proven, but analysts said it was unusual to book gas reserves as proven before the sales contracts required for actual development are signed, and some expressed concern that Shell appeared to have done this. Of the recategorization, two thirds (2.7 billion barrels oil equivalent-BOE) relates to crude oil and natural gas liquids, and one-third (1.2 billion BOE or 7.2 trillion standard cubic feet) to natural gas. (Additional reporting by Andrew Callus, Andrew Mitchell and Steve Slate in London, and Joe Giannone in New York) 

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