The oil giant Shell faces a new accounting crisis as the ramifications become clear of its December renegotiation with the Russian authorities over its stake in the Sakhalin 2 joint venture. The company may be forced to cut oil and gas reserves on its books by up to a billion barrels after the halving of its stake.
Shell was forced to cede its majority stake in the massive project off the east coast of Russia to state-owned energy group Gazprom before Christmas. Leading analysts indicate that as the majority stakeholder in the project, Shell booked the entire capacity of Sakhalin-2 onto its own reserves. However, now that it has had its stake reduced from 55 per cent to 27.5 per cent, it will have to reduce its booked reserves to that level – a 72.5 per cent fall.
One analyst told The Observer: “Shell was not specific about how much of Sakhalin-2 was booked in 2003/04, but it could mean a reduction of up to one billion barrels of oil equivalent”.
A reduction at that level would see a fall from a total 11.5 billion barrels of reserves – already the lowest among the supermajors such as BP and Exxon – to 10.5 billion
The issue of booked reserves is highly sensitive for Shell. Two years ago it was forced to drastically reduce its total because much of what was on its books did not qualify under regulations set by the US Securities and Exchange Commission (SEC). This plunged the company into crisis and led to the resignations of several senior executives, including the then chief executive, Sir Philip Watts.
Now Shell’s new Chief Executive, Joroen van der Veer will be grilled by analysts about the company’s fourth-quarter results later this week. He may just be feeling a little uncomfortable…