Jan. 9, 2004 SolarQuest® iNet News Service
By Joanna Chung and Gordon Smith
Shares in Royal Dutch/Shell fell by more than 6 per cent on Friday, dragging down other big groups in the oil sector, after the company said it was cutting its "proven" oil and gas reserves by 20 per cent.
The Anglo-Dutch group surprised the market by "recategorising" the equivalent of 3.9bn barrels of oil following an internal review. It insisted the move would have no material impact on its financial statements or capital spending, but analysts said it raised questions over the sustainability of production growth.
"This will be the third consecutive year that Royal Dutch/Shell's reserve replacement will be lower than 100 percent," said Mark Ianotti, analyst at Merrill Lynch.
In London, shares in Shell Transport fell 6.3 per cent to 376p and in Amsterdam, shares in Royal Dutch fell 7.2 per cent to €38.43.
Other European oil majors suffered in morning trading following the announcement. French group Total slipped 1.3 per cent to €140.30, Eni of Italy fell 1.9 per cent to €14.69 and Spanish group Repsol lost 0.8 per cent at €15.52. BP, which issued a trading update on Friday, shed 2.2 per cent at 433.19p. The oil sector accounted for nearly half of the declines on the Eurotop 300. (To read the full market report click here)
More than 90 per cent of the total changes made by Shell relate to a reduction in the "proved undeveloped" category of its reserves and the balance is a reduction in the "proved developed" category.
Of the restated reserves, two thirds relates to crude oil and natural gas liquids and one third to natural gas.
Shell said the restatement of reserves would not have a material impact on production in the near term or the volumes expected to be recovered. But the FAS69 standardised measure of discounted future cashflows associated with the proved reserves would be impacted, Shell said.
The affected reserves were mainly booked from 1996 to 2002, and the largest impact of the change will be in Nigeria and Australia. Shell said the recategorisation would bring the global reserve base up to a "common standard of definition," consistent within the exploration and production business.
At the end of 2002, the company's proved reserves were equivalent to 13.3 years of production. Prior to the effect of Friday's changes, the reserve replacement ratio for 2003 is expected to be in the range 70-90 per cent, representing the net addition of between 1bn and 1.3bn barrels of oil equivalent.
Meanwhile, BP issued a trading statement on Thursday saying that margins were expected to be lower quarter on quarter, especially in the US.
Refining margins are likely to fall to $3.14 per barrel from $4.59 per barrel in the fourth quarter because of higher refinery operating rates, rising product inventories, and higher feedstock costs. But they are expected to be better relative to the fourth quarter last year, BP said.
Marketing margins will also be lower, reflecting normal seasonality and increases in product prices late in the fourth quarter, BP said.
Brent oil prices rose to $29.43 a barrel from $28.38 in the third quarter. BP said the effective tax rate for the fourth quarter is expected to be around 35 per cent, in line with the previous quarter.