Royal Dutch Shell has abandoned its target of replacing at least 100 per cent of production with new reserves - one of the solemn commitments it made to placate the City after the reserves scandal two years ago, which led to three board members being sacked and the biggest shake-up of the company in a century.
Shell admitted yesterday that its chances of achieving the target over the 2004-2008 period were now less likely and said that it saw the reserves replacement figure as "an outcome" of its investment choices rather than a "forecast".
The company blamed the dropping of the target on the US Securities and Exchange Commission's strict rules for defining proved reserves. These do not generally allow companies to include "unconventional" reserves such as oil sands and gas-to-liquids, which are likely to feature increasingly in Shell's exploration programme.
Jeroen van der Veer, Shell's chairman, insisted there was still a "fair prospect" of achieving the 100 per cent target but said he did not want that to result in the company making the wrong investment decisions.
He also cautioned that rising exploration costs meant that the company might hold back on some of its longer-term projects in regions such as the Gulf of Mexico until the environment had "cooled down", which made it more difficult still to hit the reserves replacement forecast.
But Mr van der Veer said that Shell remained committed to opening up some 20 billion barrels of resources by the end of this decade - a third of its total resources base - and would be increasing capital investment from $19bn (£10.2bn) this year to $21bn next - three-quarters of which will be spent in its upstream business.
The markets shrugged off the reserves announcement and preferred to concentrate on Shell's better-than-expected 12 per cent increase in first-quarter profits to $6bn, driven in large part by record oil prices.
Mr van der Veer said there was no doubt that speculators had played "a role" in rising oil prices, noting that $100bn of speculative money had gone into the oil market.
He said there was no reason on fundamental supply-and-demand grounds for prices to have risen as they have. "There is nobody waiting at a gas station because of a lack of supply, there are no tankers waiting at refinery gates," he said.
Shell's finance director, Peter Voser, said that it had bought back $1.5bn of shares in the first quarter and would exceed its $5bn target for the year, but declined to say by how much.Reuse content