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To: maxncompany who wrote (78832)	5/7/2008 1:03:17 PM
From: Elroy Jetson	Respond to of 116555

Shell got caught out doing some strange things trying to keep up with the other major oil firms. Because they were not investing enough in exploration, they added new-found reserves, from certain projects, to proven-reserves based on geology, rather than waiting for the production to begin. The oil most likely exists, but it was a bizarre thing to do as it lowered their earnings. By doing the opposite, this is one of the major ways virtually all oil companies understate oil reserves. As an example, Chevron holds the leases on a massive oil reserve offshore California which is currently subject to drilling restrictions. On Chevron's book of oil reserves, this is carried as Zero Barrels of oil and gas. The oil in massive quantity is quite certainly there, but is not included in world reserves. This article explains what happened at Shell. guardian.co.uk Following the announcement a week ago that 3.9 billion barrels of oil and gas, or 20 per cent of its reserves, were no longer 'proved' - meaning they would not be retrieved as quickly as thought . . . Plummer says: 'What appears to have happened is that the 3.9 billion barrels was booked before FID.' This is 'surprising', particularly in the case of the biggest examples, the Gorgon liquified natural gas project in Australia and Shell's Nigerian operations, which together account for 50 per cent of the total. With Gorgon, Shell had letters of intent from Korean and Japanese customers to buy the output when it booked the project in 1997. But, Plummer says, there is a long way between these and commitment. Nigeria has vast potential reserves. But development is dependent on Shell gaining a larger proportion of Nigeria's Opec quota. The Gorgon case is difficult for Shell because its partners, Exxon Mobil and Chevron Texaco, did not book reserves as proved. It is a disaster. So why did it happen? Analysts point back 10 years. Shell's then chairman, Cornelius Herkstroter, resolved to bridge the gap between Shell's return on capital - 7.9 per cent - and the industry average of 9.3 per cent. Efforts were re-doubled under Mark Moody Stuart. Smith says: 'I remember him sitting on the edge of a desk in 1997 and vowing to us that Shell would never again sacrifice return on capital for growth. . . . .

To: maxncompany who wrote (78832)	5/7/2008 1:24:09 PM
From: Elroy Jetson	Respond to of 116555

El Paso, which you also mentioned, was a simple fraud like Enron. This small company decided to get into "energy trading", as Enron did, but they lacked the capital resources to do so. As a consequence they needed to borrow massive amounts of money, and more as time continued. To obtain these loans they needed collateral beyond what they possessed. To remedy this lack of collateral, they began to make abnormal assumptions about their oil reserves starting in 1999. Essentially they obtained a falsified appraisal on their home to qualify for a larger home equity loan. As with many home owners today, this "energy trading" business collapsed leaving El Paso struggling to pay off massive debts for which they don't have supporting capital. .