Shell replaced less than half oil pumped in 2004

LONDON - Oil major Royal Dutch/Shell replaced less than half the oil it pumped last year with new finds, according to final reserves data.

Shell said its proved reserves stood at 11.9 billion barrels of oil equivalent (boe) at the end of 2004, equal to less than nine years' production at average 2004 rates, excluding the Athabasca oil sands reserves, which it put at 0.6 billion boe.

While the figures were in line with previous guidance, they will cement many investors' worries that Shell has lost its knack of finding oil following a reserves over-booking scandal last year that led the company to downgrade around a quarter of its oil and gas reserves.

"The Reserve Replacement Ratio (RRR), excluding the impact of divestments and year-end pricing and including associates, was 49 per cent," Shell said after it filed a report with the US Securities & Exchange Commission (SEC).

Including the impact of divestments and year-end pricing, the RRR was 19 per cent.

The company also said it was in talks to settle a class action lawsuit stemming from the reserves scandal, brought on behalf of participants in Shell Oil's pension plans.

Shell said the case is at an early stage and subject to substantial uncertainties, but hoped the talks would resolve the case without further litigation.

Shell, the world's third-largest oil group by market capitalisation, added that it continued to target at least a 100 per cent replacement of its oil reserves from 2004 to 2008.

Some analysts question the firm's ability to meet this target while some investors would prefer to see the company focus on expanding production.

"The numbers make pretty poor reading but we knew the performance of Shell was poor ... it has to be a concern (that Shell has) by far the lowest reserves base of any of the large oil companies," said one fund manager who asked not to be named.

Most of the large international oil companies (IOCs) are finding it increasingly hard to make new oil finds big enough to meet their goals to replace and increase production, threatening their long-term health.

The world's biggest reserves are controlled by Middle Eastern states which restrict access to their reserves to their own national oil companies (NOCs).

Analysts say this privileged access to oil will enable the NOCs to threaten the IOC's dominance of the oil industry.

While Shell's 20-F filing shows its problems in finding oil are among the worst in its peer group, many in the industry believe the SEC rules are too strict and underestimate the true state of firm's oil reserves.

Shell says the oil in the ground at its projects is many more times the 11.9 billion boe figure.

The company also cut its net income for 2004 to US$18.2 billion ($25.86 billion) from a previously reported US$18.5 billion, to take into account its February reserves downgrade of 1.4 billion barrels of oil equivalent.

Shell's London-listed shares were up 0.32 per cent at 477-1/2p ($12.81).

Chief Executive Jeroen van der Veer received 2.9 million euros ($5.36 million) euros in salary and cash bonuses in 2004, the statement said.

- REUTERS