There is no material effect on financial statements for any year up to and including 2003. The re-categorization 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 re-categorization 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 re-categorization 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 standardized measure of discounted future cash flows associated with the proved reserves will be impacted. The estimated 10% reduction in the standardized measure is significantly less than the 20% change to proved reserves, as the majority of the re-categorization relates to proved undeveloped reserves and to relatively low margin producing areas.
Further analysis is ongoing to determine the extent to which the Re-categorization 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 re-categorization. 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 re-categorization relates to the current status of project maturity. The re-categorization brings the global reserve base up to a common standard of definition, consistent with the globalization 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 re-categorization will be reported under 'Other Eastern Hemisphere'.
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