Business Week: Shell reveals reserves fell last year: “The Royal Dutch/Shell Group of Cos., still recovering from a scandal that forced it to drastically reduce the level of its proven reserves, revealed Thursday that its oil and gas reserves fell by a further billion barrels last year.” (ShellNews.net) 31 March 05

The Royal Dutch/Shell Group of Cos., still recovering from a scandal that forced it to drastically reduce the level of its proven reserves, revealed Thursday that its oil and gas reserves fell by a further billion barrels last year.

The oil company said that after replacing only 19 percent of the oil that was pumped out of the ground in 2004, its recoverable reserves stood at 11.9 billion barrels at the end of the year, down from a restated figure of 12.95 billion barrels in 2003.

Shell had warned in February that reserves had probably fallen further in 2004 and would decline again this year.

In an annual filing to the U.S. Securities and Exchange Commission, the company noted that the low rate at which it is bringing new discoveries on stream to replace production "is clearly a concern."

However, it blamed the low reserves on the exploration strategy of the former board in the 1990s and the accompanying relatively low investment.

"Exploration has since been refocused and investment levels have increased," it said. Shell said in January it was hiring more than 1,000 engineers to strengthen the unit at the center of the reserves crisis.

The company reiterated its target of a reserves replacement ratio -- or how much oil it replaces for that pulled from the ground -- of at least 100 percent over 2004-2008, despite the much lower figure recorded last year. Rivals such as Britain's BP PLC and U.S. giant Exxon Mobil Corp. have reserves replacement ratios of more than 100 percent.

Shell has been struggling to regain ground since former Chief Executive Philip Watts acknowledged in January 2004 that the company had overstated its reserves, its most precious asset. The company was forced to cut its reserves for 2002 and 2003 and the crisis led to the resignation of three of its senior executives, including Watts, and $150 million in fines from British and U.S. regulators.

The company, which is dual-listed in Britain and the Netherlands, also decided to scrap its twin board structure to eliminate further accounting failures.

Shell revealed in the SEC filing that it is in settlement talks on some of the class action litigation brought in the United States by holders of various Shell Oil Co. pension plans over the reserves scandal.

"The group is in settlement discussions with counsel for plaintiffs, which it hopes will lead to a successful resolution of the case without the need for further litigation," the company said.

Shell did not disclose any estimated amount it may have to pay in a settlement and said no financial provisions have been taken.

The filing made no comment on other class action lawsuits filed in the wake of the reserves restatement, but disclosed that the company has lent $12 million to former board members to cover litigation costs.

Shell reiterated that it forecasts output for 2005 and 2006 to remain in the range of 3.5 million to 3.8 million barrels of oil a day, lifting to between 3.8 million and 4 million by 2009.

Outlining a new "production aspiration," it said that it expects to produce between 4.5 million and 5 million barrels a day by 2014.

The company added that it plans to deliver around $5 billion of upstream divestments and business swaps between 2004 and 2006, and flagged the potential for acquisitions.

"Focused acquisitions will be considered, especially those which provide price and exploration upside, which fit the strategic themes the group targets and where the group can see clear scope for long-term value growth," it said.

Shell shares rose 0.5 percent to 478.5 pence ($9.01, euro6.83) on the London Stock Exchange, while Royal Dutch shares gained 0.3 percent to euro46.38 ($60.08) on the Euronext exchange.

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