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Shell Cuts its Reserves Again

Last January, Shell shocked the financial world by announcing that it was downgrading 3.9 billion barrels in reserves, or about 20% of its total holdings. This was followed later in the year by several additional downgrades that increased the total by more than one billion extra barrels. (Earlier post)

Now, Shell has cut its cut its proved oil and gas reserves by another 10%, or 1.4 billion barrels. The oil giant has also admitted to difficulties in replacing its reserves extracted by ongoing production.

Over the past year, the Reserve Replacements Ratio (RRR)...we expect it will come out between 45 per cent and 55 per cent, whilst our goal is 100 per cent. But what we have indicated to the market is that we take a 5-year period. And over the 5-year period, we would like to have, on the average, 100 per cent replacement.

But we know already now—and that is due to the nature of our projects—that in the early years we will be low. But in the last year or the last two years, but especially the last year of the 5-year period, we will have higher replacement figures, because then we will have the ramping up of our projects.

Jeroen van der Veer, Group Chief Executive Royal Dutch/Shell Group of Companies

Not that Shell is hurting financially in the short term. It just reported record net income of $18.5 billion in 2004, based on high crude prices.

But increasingly, major oil companies are having difficulty in replacing their reserves. Not all 2004 results are yet in, but when they are I’ll compare production between 2003 and 2004, as well as the RRR.


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