Royal Dutch/Shell Group cut its oil and natural gas reserves for the second time this year and announced that its 2003 annual report would be delayed until late May.
Shell also revealed that regulators in the Netherlands are looking into potential insider trading, while US and UK regulators are questioning recent company actions.
Shell announced Mar. 18 the recategorization of another 250 million boe as of Dec. 31, 2002.
For 2003, Shell has reduced the volume of proved reserves it planned to book by 220 million boe, representing a 16% reduction in the 2003 reserves replacement ratio.
These revisions are in addition to the earlier downward revision of proved oil and gas reserves by 3.9 billion boe, or 20% (OGJ Online, Jan. 9. 2004), a Shell spokeswoman confirmed. The initial revision involved 2002 figures.
Shell also postponed its annual shareholders meeting to June from April but still intends to release first quarter results as scheduled on Apr. 29, Shell said.
Meanwhile, a group audit committee is conducting an independent review and plans to publicly disclose its findings in April outlining detailed circumstances behind the initial reserves recategorization, a news release said.
Shell estimates a $20 million impact on 2003 earnings in addition to $10 million in aftertax well writeoff costs associated with the initial reserves recategorization.
"Final figures with respect to both reserves and financial impact may vary from preliminary results and will be disclosed as soon as appropriate," Shell said.
Shell Chairman Jeroen van der Veer said, "These have been challenging weeks for the management of Shell, just as they have been very disappointing for investors. The management of the group is committed to the highest standards of integrity."
He was appointed chairman earlier this month to succeed Philip Watts who was said to have stepped down "by mutual consent" along with Walter van de Vijver, who resigned from Royal Dutch Petroleum Co.'s board and as a group managing director (OGJ Online, Mar. 11, 2004).
On Feb. 5, Shell announced that a senior team, led by an independent law firm, was reviewing the processes surrounding past reserves bookings.
Norway
"During the finalization of the 2003 reserves data, concerns arose about the volume of the proved reserves booking proposed for Ormen Lange field" off Norway, the company said.
Shell determined part of the volume proposed to be booked at Dec. 31, 2003, as proved reserves for Ormen Lange did not strictly follow US Securities and Exchange Commission guidance in that 3D seismic data were used to define the proved area (between well control points), without the necessary supporting evidence.
"This reduces the proved reserves planned to be booked at end 2003 for Ormen Lange from 256 million boe to some 90 million boe. There is no change in the amount or timing of production expected from the field, nor in the expected cost of production as a result of the review," Shell said.
Ormen Lange is scheduled to come on stream in October 2007, when AS Norsk Shell, a unit of Shell, will become production operator.
Norsk Hydro SA is development operator of the gas development on deepwater Block 650515/5-1 in the Norwegian Sea.
The group hired Ryder Scott Co. LP, Houston, in March to help review selected fields covering 40% of the global Shell portfolio, including 60% of proved undeveloped reserves.
Regulators' concerns
"Shell is currently engaged in correspondence with several regulatory authorities, including cooperating with a formal nonpublic investigation by the [SEC]," the company said.
The Autoriteit Financiele Markten, the Netherlands' financial regulatory body, also is investigating potential insider trading, Shell announced Mar. 18.
Euronext, of which the Amsterdam Stock Exchange is a member, has asked questions in two letters.
The Financial Services Authority in the UK also has asked a series of questions surrounding the reserves recategorization.
"Shell will continue to act in this cooperative way until the various inquiries are complete, and any actions relating to these matters will be made public at the appropriate time. Until that time, it is reasonable to expect that Shell will protect the confidential nature of discussions of the authorities concerned," the company said.