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Shell Canada ‘not involved’ Unit of Royal Dutch/Shell Group makes ‘robust’ annual review of every well, but CEO concedes it will take years to restore reputation after reserves scandal Gary Park Petroleum News Calgary Correspondent
Shell Canada is eager to separate itself from the reserves-reporting scandal that has hit the Royal Dutch/Shell Group, which owns 78 percent of the Canadian company.
Chief Executive Officer Linda Cook said activities in the parent company are “in most respects, quite isolated from our company.
“The reserves reclassifications (that resulted in a downgrading of more than 4 billion barrels) did not involve any Canadian reserves, so from that standpoint we are not involved,” she said at Shell Canada’s annual meeting April 30.
But Cook conceded the scandal “impacts all of us when there’s a hit on your reputation like that. It will take years now to restore our reputation to the place we think it should be and the place where we would all want it to be.”
She said “many of us know people in the Royal Dutch/Shell Group and some of us actually worked there.” Cook formerly reported directly to Watts For Cook those dealings were especially close. Before being named to the top job at Shell Canada last year she reported directly to Philip Watts, the ousted chairman of Royal Dutch/Shell Group, when the company was in the thick of its aggressive reserves reporting.
Cook was a member of the group’s E&P executive committee and as director of strategy and business development she had some responsibility for the reserves reporting process.
She was one of 90 witnesses interviewed by the U.S. law firm Davis Polk & Wardwell as part of the group’s internal probe into the company’s inflated reserves that concluded executives engaged in a cover-up in 1997-2000 in hopes of correcting the shortfall over time.
Cook refused to discuss her role in the company because of the ongoing investigation.
But she was emphatic that Shell Canada’s “review process is quite robust,” drawing on a staff of 29 engineers to assess the reserves, which are reviewed again by the board of directors and, if needed, independent evaluators.
The process “includes an annual review of not only every field, but every well in our portfolio,” Cook said.
Shell Canada had profits in 2003 of C$810 million and posted a record C$368 million in the first quarter, up 73 percent from a year earlier largely due to a 60 percent stake in the Athabasca oil sands project. Company has slashed reserves figures for Sable Cook pointed to actions taken by Shell Canada in January when it slashed reserves figures for the third time at the Sable natural gas project offshore Nova Scotia.
For its 31.3 percent stake in Sable, the company has reduced projected sales gas volumes from 1.1 trillion cubic feet in the mid-1990s to 430 billion cubic feet.
Cook said outside engineers were consulted when it became clear that the Sable numbers would have to be downgraded and, although the external estimate of reserves was higher than Shell Canada’s own figure, the company opted to stay with its more conservative numbers. Canada’s guidelines exempt companies with 80 percent of output For all of Cook’s reassurances, the Royal Dutch/Shell Group troubles have again put the spotlight on Canada’s new reserves guidelines, National Instrument 51-101, which have tightened reporting for all Canadian-based companies except those that are listed on U.S. stock exchanges, or produce more than 100,000 barrels of oil equivalent per day, and are exempt from a requirement that 75 percent of reserves be evaluated by a third party.
Although only 11 companies qualify for the exemption, they account for 80 percent of Canada’s oil and gas output.
It was first thought that the less-stringent U.S. Securities and Exchange Commission rules would be sufficient to ensure there was a high degree of certainty that reserves could be recovered, but the stumble by Royal Dutch/Shell Group, which follows SEC standards, has raised doubts.
On other fronts, Cook said the company is looking for ways to halt the decline in its conventional oil and gas production, a job she admitted will be difficult and not accomplished overnight.
Shell Canada is hopeful that an exploration moratorium on the British Columbia offshore will be lifted, opening the door to its 12.4 million acres of leases.
Noting that Shell Canada drilled 14 unsuccessful wells in the 1960s, Cook said she hopes technological advances will allow it to better assess the region’s potential and reduce concerns about environmental impact.
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