Royal Dutch Shell Plc said hello depleted its oil and gas reserves much faster of computer replenished all of them with new resources in 2015, its worst performance since a cpa scandal that engulfed the organization 12 years ago.
Shell said its reserves replacement ratio – the proportion of oil and gas production in the past year which was offset through the addition of new resources – was minus 20 percent. The company not just failed to replace the 1.1 billion barrels equivalent it pumped in 2015, but also wrote off another 200 million barrels to take into account the plunge in oil prices.
Oil and gas reserves are very important for valuing companies because they make up the basis for future output. While producers aim to replace at least 100 percent of the reserves they pump each year, a sudden stop by oil prices often means some resources held on their own books aren’t economic to create. Shell’s last negative replacement ratio was in 1999 – an amount that was only revealed in 2004 once the company slashed total reserves by 20 percent after admitting it had overstated them for several years.
“It’s not normal, obviously,” Chief Financial Officer Simon Henry told reporters on the conference call following the company’s fourth-quarter results.
Project Cancellation
Shell blamed the drop last year on low crude prices and also the cancellation of their 80,000 barrel-a-day Carmon Creek oil sands project in Canada. “We significantly curtailed spending by reducing the amount of new investment decisions and designing lower-cost development solutions,” Chief Executive Officer Ben Van Beurden said in a statement.
Other major oil companies fared far better in the same price environment. BP Plc reported Feb. 2 a reserve replacement ratio of 61 per cent for 2015, while Chevron Corp. achieved 107 percent. Shell’s ratio was “weak,” said Oswald Clint, an analyst at Sanford C. Bernstein & Co.
Shell said that its total oil and gas reserves after 2015 stood at 11.7 billion barrels equivalent of oil, down 1.4 billion barrels from the previous year. The organization reported a 44 percent drop in fourth-quarter profit and is betting its $50 billion acquisition of BG Group Plc, set to shut on Feb. 15, can help it maintain dividends and increase gas and oil production at any given time when income is shrinking.
Shell admitted more than a decade ago it had been overestimating the size of its oil and gas resources by almost one fourth, specifically in Nigeria. The organization restated reserves for that period from 1997 to 2002, and made further alterations in 2003 and 2004. The ensuing scandal resulted in fines in the U.S. and U.K., hundred of huge amount of money of payments to settle investor lawsuits, the ouster from the company’s chairman, and also the consolidation of the Dutch and British branches of the corporation.
The scandal resulted in closer scrutiny of methods oil companies book their oil and gas reserves by auditors, regulators and investors.
Bloomberg.com
