Royal Dutch/Shell 'Oil Reserves' Controversy
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Case Details:
Case Code : BECG040
Case Length : 14 Pages
Period : 2001-2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Royal Dutch/Shell
Industry : Oil and Energy
Countries : Netherlands/UK
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BECG040) click on the button below, and select the case from the list of available cases:
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts Contd...
The Aftermath
From the time the first oil reserves recategorization was announced in January 2004, shareholders had called for Watts' resignation as the chairman of Shell. But Watts continued in his office and on February 05, 2004, while announcing the group's annual results said that he would not resign.
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However, on March 03, 2004, Watts stepped down as chairman of Shell with immediate effect. This sudden departure came as a surprise to all the stakeholders of Shell. Following Watts' departure, there were a series of management changes at Shell.
Jeroen Vander Veer (Veer), the President of Royal Dutch Petroleum succeeded Watts as Chairman of the Committee of Managing Directors. Lord Oxburgh was appointed as interim non-executive chairman of The Shell Transport and Trading Company. Malcom Brinded (Brinded) was appointed as the Managing Director of the company and would also serve as Vice-Chairman of the Committee of Managing Directors...
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Lessons from the Saga
Analysts felt that Shell's controversy had brought into focus the lack of standardization in the definitions of various categories of oil reserves.
Though many petroleum analysts believed that the best measure of a company's reserve holdings was the combination of proved and probable reserves, the SEC allowed the industry to record only proved reserves in the books. Moreover, SEC rules did not allowed firms to book reserves using modern technologies like advanced computer-based imaging techniques for measuring new reservoirs. According to media reports, the SEC rule that remote gas could be booked as proved only if transportation and customers were established, had become outdated in this era of spot trading. Also, SEC's requirement for firms to reassess the commercial viability of their reserves annually, using current oil prices had also resulted in some oil companies aggressively booking reserves when oil prices were high...
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Exhibits
Exhibit I A: The Royal Dutch Petroleum Company (May 2003 - April 2004)
Exhibit I B: The Shell Transport and Trading Company (May 2003 - April 2004)
Exhibit II: Oil and Gas Reserve Replacement Percentage Rates
Exhibit III: Royal Dutch/Shell - Statements of Income
Exhibit IV: SEC Definitions for Proved Oil Reserves
Exhibit V: Improved Controls that are Implemented/In Progress
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