February 27th, 2006:

It should be the best of times for the energy giant. But a look at its reserves show Royal Dutch Shell may soon be running on empty.
By Nelson D. Schwartz, FORTUNE senior writer
February 27, 2006: 1:24 PM EST
(FORTUNE Magazine) – Judging by the $23 billion it earned last year, these should be the best of times for Shell, the Anglo-Dutch energy giant that ranks third among the top five Western oil companies. But Wall Street isn't celebrating. Instead, analysts are worried that buried beneath the record profit figures are worrying signs of a business in decline.
That's because Shell (Research) hasn't been able to find nearly as much oil and gas as it's now pumping out of the ground. In fact, it hasn't even come close — replacing only 60 percent to 70 percent of what it produced in 2005 and only 19 percent in 2004. Shell has had reserve problems for years — a controversy over improperly booked assets forced it to reduce estimated reserves by roughly 30 percent and led to the resignation of its CEO, Phil Watts, in 2004.
But what's troubling now is that Shell is falling way behind rivals like Exxon and BP despite spending billions more each year on exploring and drilling new wells. Last year Exxon replaced 112 percent of production, and BP came up with 95 percent.
“I have never seen anything like this,” says Fadel Gheit, a veteran energy analyst with Oppenheimer & Co. “Shell used to represent the gold standard in this industry, but lately they can't get their act together.”
To be sure, Shell still has huge assets — nearly 12 billion barrels. But in the oil and gas industry, reserve replacement is the best guide to whether a company will be able to maintain — or grow — production in the future. So not replacing what you pump, says longtime industry observer Matthew Simmons, “is like eating your seed corn. If you're not finding new oil, you're just liquidating what you've got.” Indeed, Shell's daily production figures have been weak lately, falling 6.7 percent in 2005, to 3.52 million barrels a day.
Privately, Shell execs say the company's decision to cut spending for exploration when oil prices bottomed out in the late 1990s is partly to blame for the anemic numbers now. Shell CEO Jeroen van der Veer insists that projects like those on Sakhalin Island off Siberia and in Nigeria and the Gulf of Mexico will enable the company to start catching up with peers in the years ahead. It won't be easy.
“If you're not adding to reserves, you have a problem,” says Sanford Bernstein analyst Oswald Clint. “Shell will have to run twice as hard just to stay in place.” read more

LAGOS (AFP) – Anglo-Dutch giant Shell, which is locked in a bitter legal battle over environmental damage in Nigeria's oil-rich southern Delta, is appealing against a hefty 1.5-billion-dollar (1.2-billion-euro) fine for pollution.
On Friday, the federal high court in the southern city of Port Harcourt slapped the fine for environmental pollution on the company following a suit filed by the local Ijaw community.
“The court ruled that we should pay 1.5 billion dollars to communities in the Niger Delta (but we have) already lodged an appeal in a higher court,” a company spokesman said.
A group calling itself the “Ijaw Aborigines of Bayelsa State” had taken Shell to court because the company had ignored an order from the Nigerian senate in 2004 to pay the money to the impoverished local community.
Last year Shell made a net profit of 22.94 billion dollars (19.03 billion euros) for 2005, the highest full-year profit in British corporate history, on the back of record high oil prices.
The Anglo-Dutch giant said it had appealed “on, among other grounds, the strength of independent expert advice, which demonstrates that there is no evidence to support the claims of the group”.
Shell contends that the pollution of the waters and farmland in the Delta region is a result of sabotage and it is therefore not responsible for the damage.
But this stance is compromised not only by the rulings of parliament and the high court in Port Harcourt, but also by a verdict from the federal court in Benin City.
On November 14 last year the Benin City court ordered Shell to immediately cease gas flaring, following a complaint filed by seven Ijaw villages who said they were suffering from severe respiratory ailments.
The court decreed that flaring was a “violation of fundamental rights and dignity which was guaranteed under the constitution”.
Shell also appealed against this ruling and continued gas flaring, provoking a fresh suit on December 16.
The Ijaws have been aided in their fight by various local and international bodies, including the Environmental Rights Action and the Nigerian branch of environmental group Friends of the Earth (ERA/FoEN).
Akinbode Oluwafemi from ERA/FoEN told AFP that although the two suits were not directly linked, both were “from the Niger Delta people, who have been suffering.
“Both are trying to get justice for the people,” he explained.
“Our own demand is more than compensation. We think they should stop gas flaring completely,” Oluwafemi said.
“What we expect Shell to do is to stop ignoring the law and the judicial system of Nigeria. Shell should allow justice to prevail instead of launching appeal after appeal.”
Nigeria is Africa's largest oil exporter, producing a total of around 2.6 million barrels per day. But the wells and flow stations of the Niger Delta are vulnerable to attack from pirates, separatist militants and angry local groups.
Shell's woes have been exacerbated by increasing attacks by Ijaws on oil installations and the February 8 kidnapping of nine foreign oil workers.
There are a plethora of angry Ijaw separatist or militant groups.
All are united by a common complaint — Nigeria's 30-billion-barrel oil reserves are the rightful property of the Delta's 14-million-strong Ijaw tribe and have been unjustly taken by the federal government and foreign oil majors.
Since the latest kidnapping, Shell has slashed Nigeria's key crude exports — the source of more than 90 percent of the country's external revenue and two thirds of the government budget — by 455,000 barrels per day, or 20 percent. read more

Monday, 27th February, 2006
By Hillary Kiirya
THE Supreme Court has thrown out an appeal by Shell (U) seeking to challenge a Court of Appeal decision that declared its former employer’s dismissal illegal.
The court also ordered Shell to pay costs amounting to about sh150m to Eng. George Ndyabawe.
Five judges in a judgement delivered recently, upheld the Court of Appeal decision saying Shell’s appeal was incompetent and had also been filed out of time.
Shell dismissed Ndyabawe, who later sued them to the High Court but the presiding Judge, Mary Amaitum, dismissed his suit.
However, the Court of Appeal, reviewing maitum’s judgement, declared that the decision by Shell to dismiss Ndyabawe was illegal and unlawful as it was based on heresy from jealous people. read more

By REUTERS
Published: February 27, 2006
Filed at 2:02 a.m. ET
SINGAPORE (Reuters) – Oil fell more than 1 percent on Monday as dealers cautiously weighed a “basic'' nuclear deal agreed by Iran and Russia, but fears over Saudi supplies after last week's thwarted al Qaeda attack checked losses.
U.S. oil futures for April delivery (CLc1) slid 72 cents, or 1.14 percent, to $62.19 a barrel.
Prices had soared 4 percent on Friday after news of the failed raid on an oil facility that handles most Gulf supplies from the world's biggest exporter, but dealers locked away some of those profits on Monday as exports flowed undisturbed.
London Brent crude (LCOc1) fell 69 cents to $61.91 a barrel.
“The Iran issue has settled down a little bit after they agreed this joint venture with Russia,'' said Nahiro Niimura, vice president of Mizuho Corporate Bank's derivatives unit in Tokyo. “That drives some market participants to sell.''
Iran said on Sunday it had reached a “basic agreement'' with Russia on jointly enriching uranium. Moscow had proposed for Iran's uranium to be enriched in Russia to defuse suspicions that it might use some of the fuel for nuclear weapons.
“Talks to complete this package will continue in coming days in Russia,'' said Iranian nuclear chief Gholamreza Aghazadeh.
But there was no immediate sign that Tehran would suspend home-grown enrichment, the crux of a dispute that oil traders fear could disrupt exports from OPEC's second-largest producer.
Dealers will now be looking for more clues when the board of the United Nations' watchdog, the International Atomic Energy Agency (IAEA), meets on March 6 to discuss its latest report.
Iran could next be referred to the U.N. Security Council for sanctions, which traders fear could spur Tehran to withhold oil supplies in retribution, although oil ministry officials have repeatedly insisted this will not happen.
“I don't think Iran will stop oil exports because of the money, but we have to wait and see for the IAEA meeting,'' said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures.
SAUDI SHADOW
In Saudi Arabia, violence flared again on Monday as security forces killed about five suspected militants after besieging a villa in a Riyadh suburb, security sources said.
They said the men were believed to be linked to al Qaeda's raid last Friday on the Abqaiq crude processing plant — the world's biggest — which was foiled by security services before it could cause any serious damage to facilities.
Al Qaeda vowed at the weekend to carry out more attacks.
“The most important thing is the Saudi issue and al Qaeda saying they could attack at any time. We have to watch their activities. Geopolitics will support $60 this week,'' Emori said.
Most of Saudi Arabia's 7.5 million barrels a day of crude oil is exported from the Gulf via the huge producing, pumping and processing facility at Abqaiq.
It was the first direct strike on a Saudi energy target since al Qaeda launched attacks aimed at toppling the U.S.-allied monarchy in 2003, serving oil traders a fresh reminder of the geopolitical risks beyond those in Iran, Iraq and Nigeria.
There was no sign of Royal Dutch Shell (RDSa.L) restarting the 455,000 barrels of daily production that was shut in just over a week ago due to militant violence in Nigeria, the world's eighth-largest oil exporter.
With prices hovering above $60 a barrel, OPEC may be content to agree to keep pumping at near full throttle when it meets on March 8, despite worries about the downturn in second-quarter demand and robust inventories in the United States.
“Our position is that we should not change production,'' Algeria's Energy and Mines Minister Chakib Khelil said on Saturday. read more

KWARA State governor, Dr. Bukola Saraki, at the weekend expressed concern over the activities of militants in Niger Delta, noting that 25 per cent loss in oil production by Shell is a threat to the nation’s economy.
Dr. Saraki, who expressed the concern while signing the state 2006 budget of N35.71 billion into law, said the 25 per cent loss in oil production would affect the implementation of the country’s budget.
The governor expressed concern over the nine expatriates kidnapped by the youths in the Niger Delta and appealed to the foreign countries to show solidarity with Nigeria.
Speaking on the state budget, Dr. Saraki said the government focus was on education, health and agriculture because “we believe these are the key areas of human development.”
He stated that the government embarked on renovation of four secondary schools in the state last year to make them role models in the country, adding that 16 others would be renovated this year.
He said the government would lay more emphasis on primary health care which was started in 2005 through renovation of the 33 general hospitals across the state.
On agriculture, the governor said the budget would promote agriculture which he said could be sustained and be made effective through irrigation. read more