THE WALL STREET JOURNAL: Repsol Net Fell 38% in Quarter; Reserve Estimate Is Lowered: “Last year, Royal Dutch/Shell Group revealed that it had overstated its reserves by one-third, triggering an executive-suite shake-up, regulatory fines and investigations by U.S. and European authorities”: “…Shell have said recently that they failed to replace all the reserves that they depleted last year, as measured by the SEC's accounting standards. Typically, oil companies try to at least replace 100% of the energy they produce” (ShellNews.net) 23 Feb 05

By ANDRES CALA and ENZA TEDESCO

Staff Reporters of THE WALL STREET JOURNAL

February 23, 2005

MADRID -- Spanish oil company Repsol YPF SA reported a 38% drop in fourth-quarter net profit and cut its estimated energy reserves by 4.1% to comply with U.S. Securities and Exchange Commission rules on reserve accounting.

Net fell to €254 million ($331.9 million) from €412 million the year earlier, substantially short of analysts' forecasts. The unexpected decline was caused by €667 million of provisions and write-offs related to contract liabilities, tax contingencies in Spain and Argentina and the depreciation of service stations in Brazil and Peru. For the year, Repsol's net profit fell 3.5% to €1.95 billion despite higher crude-oil prices and improved refining margins.

Repsol said a three-year audit by independent consulting firms led to the downward revision in the company's proven reserves to 4.93 billion barrels of oil equivalent. Repsol said the revision -- which corresponds mainly to gas fields in Argentina as well as in Trinidad and Tobago, and an oil field in Brazil -- reflects a change in the SEC's measurement standards that required it to reclassify some of its reserves as "probable," instead of "proven."

Reserves are the estimate of oil or natural gas a company has in the ground and believes it can someday pump and sell. They serve as an important gauge for investors of an oil company's growth prospects. Last year, Royal Dutch/Shell Group revealed that it had overstated its reserves by one-third, triggering an executive-suite shake-up, regulatory fines and investigations by U.S. and European authorities.

Meanwhile, a number of other big oil companies, including Exxon Mobil Corp., BP PLC and Shell , have said recently that they failed to replace all the reserves that they depleted last year, as measured by the SEC's accounting standards. Typically, oil companies try to at least replace 100% of the energy they produce.

Repsol's replacement rate was 32.5% last year, according to analysts' estimates. "We are aware that we have a low organic reserves-replacement ratio," Chairman Antonio Brufau said. He added that 2004 "was not a good year for exploration" and that Repsol will invest €400 million to €450 million in exploration projects this year.

Repsol's American depositary shares fell 65 cents, or 2.4% to $26.34 in 4 p.m. New York Stock Exchange composite trading.

ING oil analyst Jason Kenney said the various provisions and write-offs Repsol took in the fourth quarter are "what's commonly known as 'kitchen-sinking.' When a new management comes in, it looks to throw everything down the sink and start with a clean state so it can show only growth after that."

Write to Andres Cala at andres.cala@wsj.com

and Enza Tedesco at enza.tedesco@dowjones.com