Shell - Proved reserve recategorisation following internal review

The Royal Dutch/Shell Group of Companies (‘Shell’) announced today that, following internal reviews, some proved hydrocarbon reserves will be recategorised. The total non recurring recategorisation, relative to the proved reserves as stated at December 31st 2002, represents 3.9 billion barrels of oil equivalent (‘boe’) of proved reserves, or 20% of proved reserves at that date. Over 90% of the total change is a reduction in the proved undeveloped category; the balance is a reduction in the proved developed category.

There is no material effect on financial statements for any year up to and including 2003. The recategorisation of proved reserves does not materially change the estimated total volume of hydrocarbons in place, nor the volumes that are expected ultimately to be recovered. It is anticipated that most of these reserves will be re-booked in the proved category over time as field developments mature.

Of the recategorisation two thirds (2.7 billion barrels) relates to crude oil and natural gas liquids, and one third (1.2 billion boe or 7.2 trillion standard cubic feet ) to natural gas.

The recategorisation itself is not expected to have a material impact on hydrocarbon production in the near term. As advised in March 2003 and October 2003, the production profile for 2003 – 2005 is expected to be broadly flat. As of December 31st 2002, proved reserves were equivalent to 13.3 years of production.

The FAS69 standardised measure of discounted future cashflows associated with the proved reserves will be impacted. The estimated 10% reduction in the standardised measure is significantly less than the 20% change to proved reserves, as the majority of the recategorisation relates to proved undeveloped reserves and to relatively low margin producing areas.

Further analysis is ongoing to determine the extent to which the recategorisation will impact on prior year reported proved reserves and the results will be disclosed.

The figures quoted above do not include any amounts that will be added to reserves as the result of normal operations in 2003. On a preliminary basis, ignoring the effect of the adjustment noted in this release, the reserve replacement ratio for 2003 is expected to be in the range 70-90%, representing the net addition of between 1.0 and 1.3 billion boe. The final figures for 2003 reserve replacement will be disclosed on February 5th 2004.

Several factors identified by Shell’s own reviews led to the recategorisation. During Q4 2003, a number of in depth reserve studies were completed, which prompted a broad review of its previously booked reserves against current proved reserves standards.

Reserves affected were mainly booked in the period 1996 to 2002. A significant proportion of the recategorisation relates to the current status of project maturity. The recategorisation brings the global reserve base up to a common standard of definition, consistent with the globalisation of processes within the new Exploration & Production business model.

A number of countries are affected by the change, with the largest impact in Nigeria and Australia. The majority of the overall recategorisation will be reported under ‘Other Eastern Hemisphere’.

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