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

Saturday January 28th 2006
Pat Boyle
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.

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