Royal Dutch/Shell Group said Thursday it recategorized an additional 250 million barrels of oil equivalent (boe) of proven reserves at the end of 2002. It also reduced the volume of proved reserves that it planned to book in 2003 by 220 million boe.

This was the second restatement of the company’s oil and natural gas reserves in two months, coming on top of the 20% reserve reduction, or about 3.9 billion boe, that was disclosed in January. Royal Dutch/Shell already is the target of inquiries by the Securities and Exchange Commission (SEC) and European regulators for its inflated reserve bookings. The Justice Department also reportedly is looking at whether the company violated any U.S. laws (see Daily GPI, March 18).

The latest restatement by the group, which is 60% owned by Royal Dutch and 40% owned by Shell Trading and Transport, reverberated on Wall Street. Royal Dutch shares fell 60 cents to $47.71 in Thursday trading, while Shell Trading stock was off 55 cents to trade at $40.50.

Noting that the additional restatement was both a “surprise and a disappointment,” the company said concerns arose about its volume of proven reserves for 2002 while it was working to finalize its 2003 reserve data. It conducted a fast-track review earlier this month with the aid of an external consultant, said Malcolm Brinded, new chief of exploration and production (E&P). The review covered only about 40% of the group’s global reserve base, suggesting perhaps that more restatements may be ahead.

Approximately 80% of the recategorization involved reserves in Northwest Europe and Australasia, he said. Of the 220 million boe reserve reduction for 2003, the majority involved reserve bookings (170 million boe) for a Norwegian field, Brinded noted. The 220 million boe correction cut the company’s reserve replacement ratio for 2003 by about 16%.

He reported that a team of internal and external auditors is carrying out a review of a wider reserve base of Royal Dutch/Shell. The company said it expects to complete the review within six weeks. It will include reserves to be booked at the end of 2003, and any restated 2002 reserve bookings, according to Brinded.

Despite the recategorization and reduction in oil and gas reserves, he said it would not affect the cost or timing of planned production. Brinded estimated, however, the impact of the restatement on earnings would be approximately $20 million. In addition, the well write-off costs related to the company’s initial recategorization would be $10 million after tax, he said.

As a result of the changes to reserves, Royal Dutch/Shell Chairman Jeroen van der Veer said the company’s annual report, which was due out Friday, will not be released until late May. He further said the company’s annual meeting in London would be postponed to June 28. Although Royal Dutch/Shell’s “reputation has been dented,” van der Veer said the company remains “financially healthy.”

The company said it has taken a number of remedial measures to avoid inflated reserve numbers in the future. Significantly, Brinded said reserve bookings have been removed from performance scorecards that have been used to determine executive bonuses.

However, he noted, “I want to clarify that this has never been a particularly significant element of individual remuneration. The potential bonus for on-target performance of reserve replacements was normally around five to 15% of the bonus available to those individuals.”

Brinded also said the company plans to significantly increase the number of E&P staff who are dedicated to reserve management. It also will initiate a major program for its technical staff worldwide to fully understand the SEC’s rules and compliance regulations as they relate to reserves bookings.

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