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Shell relied on Qatar gas project to boost reserves last year

Royal Dutch Shell Plc, Europe’s largest oil company, relied on the advancement of its gas-to-liquids project in Qatar for more than half of the gain in its proven reserves last year, the company’s annual report showed.

Royal Dutch Shell Plc, based in The Hague, had proven oil and gas reserves equal to 11.807 billion barrels of oil at the end of 2006, including its share of equity-owned investments, up from 11.466 billion barrels at the end of 2005, according to the report, filed with regulators yesterday.

The 2006 tally remains below Shell’s year-end 2004 reserves. Shell came under fire from regulators and shareholders in 2004 and eventually ousted its chairman after the company admitted it had overstated its reserves. Shell calculates reserves using US Securities and Exchange Commission guidelines and discloses global information in six geographical categories.

The category with the largest increase through exploration work was the region including the Middle East, Russia and former Soviet states. In that region, „the increase of 186 million barrels in extensions and discoveries was primarily related to the recognition of NGL reserves for our GTL project in Qatar,” the report said.

The company made its final decision to proceed with that project last year. Shell said it stands to lose half of the 800 million barrels of proven reserves it has from its majority share of the Sakhalin-2 oil and gas project in Russia, the report said. The company has agreed to sell half its stake to state-run OAO Gazprom.

Shell’s report also showed that the cost of production rose last year in all regions where it operates, and rose for a second year in most locations. In the US, production costs rose to $8.08 a barrel. In its Q4 earnings results on February 1, Shell said it replaced 150% of its proven reserves through exploration last year, up from 78% in 2005, using US Securities and Exchange Commission accounting standards and including oil sands.

The 2005 ratio, excluding oil sands, was about 67%. Earlier this month, Shell’s closest European competitor, London-based BP Plc showed in its annual report that it relied on its Russian unit, TNK-BP, to boost proven reserves. BP’s oil and gas reserves fell in most other locations, including North America and Europe. (Bloomberg)