Shell likely to downgrade size of Corrib gasfield reserves by $2bn

Saturday January 28th 2006
By Pat Boyle

- Irish Independent

SHELL is expected to downgrade the estimated size of the Corrib
gasfield by about $2bn worth of gas to take account of conservative new
accounting policies and problems with the gas reservoir.

Oil industry sources said that a quarter of the Corrib reservoir is
extremely problematic, and that there is no guarantee the gas contained
in this section can be recovered, forcing Shell into a downgrade of
recoverable reserves in order to stay in line with conservative new
accounting practices.

A spokeswoman for Shell declined to comment, saying the company did not
comment on a "field by field basis".

Early estimates for the Corrib field were that it had one trillion
cubic feet of gas.

However, as appraisal work on the find progressed, this was downgraded
to about 850 billion cubic feet of recoverable gas reserves, and now
that figure could fall towards 600bn cubic feet.

Now Shell is set to downgrade this further, possibly by up to 25pc to
take account of the problems with the reservoir.

Downgrade

The downgrade would translate to some €2bn worth of gas at today's
prices.

Such a cut will make severe inroads into the profitability of the find,
but industry players believe Shell will persevere, even though by the
end of 2004 almost half of the estimated $900m development budget had
already been spent. Since then development costs have soared by some
40pc, leaving the economics of the project tightly balanced.

The cut in reserves may also call into question estimates which
suggested the field would supply the bulk, 60pc, of national demand for
15 years from about 2007.

Shell acquired its 45pc stake in Corrib through its acquisition of
Enterprise Oil for about $5.7bn in 2002.

The issue of reserves at Shell came under the spotlight when the
company admitted that, under the US Securities and Exchange
Commission's 'proven' definition of reserves, it had exaggerated the
total by some 20pc.

After a series of corrections the reserves were eventually chopped to
4.47bn from 5.9bn barrels of oil and gas.

According to consultants Wood MacKenzie, Shell now has among the most
conservative accounting procedures in the industry, and it is expected
that when its next round of reserve estimates are published, they will
take account of a cut of about 25pc in the size of Corrib reserves.

One of its partners in the Corrib field, the US firm Marathon, has
already reduced the share of Corrib it regards as proven by 145m
barrels of oil equivalent (MBOE) or 84bn cubic feet of gas.

Shell has already undertaken a hefty writedown in the value of the
assets it acquired when it bought Enterprise Oil - the most recent a
$330m downgrade in 2004 and even with its many problems, Corrib is one
of the few Enterprise assets it can point to in order to justify
Enterprise's $5.7m price tag.

© Irish Independent
http://www.unison.ie/irish_independent/ & http://www.unison.ie/