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Monday, March 14, 2005

Shell Game

This web site, Shell Crisis, violates Occam's razor by presenting way too convoluted a theory to explain why Shell Oil had to reduce their petroleum reserve estimates and thus lose the equivalent of $140 billion amount of worth. The site's author, Michael Ekin Smyth writes:
Shell's crisis centres on its inability to reconcile its figures with the definitions set by America's Securities and Exchange Commission (SEC). The SEC, which has all of two petroleum engineers, relies significantly on the definitions produced by the Society of Petroleum Engineers (SPE).

The SPE divides the total resource into 10 different categories grouped under three main headings: proved reserves, contingent resources and prospective resources. Proved reserves are the quantities of oil or gas from known reservoirs and expected to be recoverable with current technology and at current economic conditions. Prospective resources are those that may be recoverable in the future with advanced technologies or under different economic conditions.

The current debate focuses on the first category: 'proved reserves' which is subdivided into three main categories, 'proved', 'proved+probable', and 'proved+probable+possible'.

The crisis - the clash
As fair warning, I don't recommend anyone trying to deconstruct the site's organization (it looks as if the author has simply done the equivalent of spreading his notes on the dining room table in the hope of trying to conjure up a cogent thesis).

Instead let's follow what Occam's razor says: the best explanation derives from the fewest number of assumptions leading to the simplest conclusion. With that, most would simply suggest that actual lowering of reserves due to oil depletion caused Shell's current predicament. Who would have thunk it?

Unfortunately the simple argument doesn't allow one to show off your wordsmything skills in the hopes of landing plum writing assignments or to try to get rehired by oil companies desperately in need of their own Karen Hughes.
A journalist and speechwriter for nearly three decades, Michael has been writing about energy issues since 1990. After four years with OPEC, he joined Shell as a speechwriter in 1996.
[...]
He joined the OPEC news agency in 1991, immersing himself in the arcane politics of the energy world. Based in London since 1996, he has worked as a speechwriter and scriptwriter for senior Shell executives and for a variety of other companies.

Let's just say that my B.S. detector went into hyperdrive on this one.

Update: Fixed ShellCrisis link.

6 Comments:

Professor Blogger Big Gav said...

Great post - that guy has been annoying me for a while (if you read some of the comments to the Sydney Morning Herald peak oil articles that I've blogged about you'll see he's muddied the waters a few times - and is semi-coherent, so he's probably succeeded in confusing a few people).

5:01 AM  
Professor Blogger WHT said...

Right, I tracked this from a PeakOil forum post, which originated from the Margo Kingston blog. In there Smyth goes after peak oil theorists with gusto.

Semi-coherent, yes, but that's his job.

6:06 AM  
Professor Blogger Bubba said...

Look, Shell is in trouble like all the other majors. JS Herold predicts them all to peak in production between 2007 and 2009. And I am not going to comment about this guy's writing or his site, but I don't think his analysis is too far off the mark. If you haven't been inside these companies you can't believe how fucked up things can get for incredibly stupid reasons.

Phil Watts pushed his underlings for lots of reserve bookings when he was head of E&P. Most of those bookings were far from the US (Nigeria, Australia etc.) and the bookings were not made with US laws in consideration. Years later it was discovered that many of these bookings were dramatically out of compliance with SEC regs (which Shell must comply with for it's securities to be traded in the US). Van der Vijver pushed for compliance. Watts stalled him. Ultimately he couldn't stall forever. The cast of players is small and the issues ultimately petty.

8:23 PM  
Professor Blogger Bubba said...

Look, Shell is in trouble like all the other majors. JS Herold predicts them all to peak in production between 2007 and 2009. And I am not going to comment about this guy's writing or his site, but I don't think his analysis is too far off the mark. If you haven't been inside these companies you can't believe how fucked up things can get for incredibly stupid reasons.

Phil Watts pushed his underlings for lots of reserve bookings when he was head of E&P. Most of those bookings were far from the US (Nigeria, Australia etc.) and the bookings were not made with US laws in consideration. Years later it was discovered that many of these bookings were dramatically out of compliance with SEC regs (which Shell must comply with for it's securities to be traded in the US). Van der Vijver pushed for compliance. Watts stalled him. Ultimately he couldn't stall forever. The cast of players is small and the issues ultimately petty.

8:23 PM  
Professor Blogger WHT said...

Bubba,
You know more than I that the internal Shell bureaucracy is chaotic. We probably need some charts and graphs for this stuff :) However the complicated infighting scenarios cause instant MEGO. I always suspected that this caused Enron to sink from public view faster than it should; in their case it was truly a House of Cards that only a few really understood.

10:43 PM  
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