Daily Telegraph (UK): Shell shock as reserves and new supplies dwindle: “Shell yesterday shocked investors with a fifth downgrade of its "proven" oil and gas reserves in just over 12 months, and revealed that it had struggled to find more oil supplies to replace its output last year.” (ShellNews.net) Posted 5 Feb 05
By Christopher Hope, Business Correspondent (Filed: 04/02/2005)
Shell yesterday shocked investors with a fifth downgrade of its "proven" oil and gas reserves in just over 12 months, and revealed that it had struggled to find more oil supplies to replace its output last year.
The news overshadowed record profits of $17.6 billion (£9.3 billion), up 38pc, in 2004 on the back of a surging oil price and a strong performance by the company's downstream business. Net income or profit after tax was up 48pc to $18.5 billion (£9.8 billion). Both were records for a British company.
Shell said yesterday that its proven or commercial exploitable tally of oil and gas had fallen by another 1.4 billion barrels in the company's fifth downward revision since the problems first emerged in January last year. The latest revelation means that Shell's proven reserves have fallen by 33pc to 12.95 billion barrels of oil and gas – or barrels of oil equivalent (boe)– from 19.34 billion barrels this time last year. Shell's shares closed down 8.25 at 471.75p.
Malcolm Brinded, Shell's head of exploration and production, admitted that the latest revision was "disappointing". He declined to offer an apology to shareholders for the latest change, pointing out that it came about once the new management team had improved its internal controls, rechecked 1,500 fields and 12,000 wells and trained up 3,000 geologists in filing compliant reserves estimates.
Mr Brinded added that he was hopeful there would be no more changes as the company enters into negotiations with America's Securities and Exchange Commission over its final reserves tally. He said: "We are at the turning point. We have taken the steps to put the reserves issue behind us."
Shell produced 3.8m barrels of oil and gas a day last year. However, there was more bad news when Mr Brinded disclosed that the rate at which Shell is replacing its oil and gas dropped from an expected 60pc to 80pc to just 45pc to 55pc.
Shell is increasing the amount of cash spent on exploration and production to $10 billion this year, from $8.8 billion in 2004. However, Mr Brinded conceded that in 2005 the reserves replacement rate would be less than 100pc. "This year will be the low point in production," he said, adding that he was hopeful the rate would climb to over 100pc on average between 2004 and 2009. "I am confident that we can achieve that," he said, "but we know that it will be back-end loaded." Jeroen van der Veer, Shell's chief executive, described last year, in which the company's top three directors resigned over the reserves scandal as a year of contrasting fortunes for Shell. He said: "2004 was a year of extremes, with the reserves recategorisation on one hand and record net income and cash generation on the other."
The strong performance in 2004 was helped by a combination of the strong oil price, which averaged $36.60 a barrel last year compared with $27.50 in 2003, and a good showing from Shell's oil products operation, where profits jumped 107pc to $6.53 billion.
Some $10 billion will be paid in dividends this year, and a further $3 billion and $5 billion buying its shares back. Shell announced an interim dividend of 10.7p, making 16.95p for the year.