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Disclosure of Mineral Reserves--Learning From the Royal Dutch/Shell Recategorisation

Glen Ireland, Proceedings of 51st Annual Rocky Mountain Mineral Law Institute (2005)

In early 2004, Royal Dutch/Shell (Shell), one of the world's largest and most respected companies, announced to its shareholders and the world that its petroleum reserves were significantly lower than had been previously reported. Shell's reserve “recategorisation” shocked the global capital markets, and plunged Shell into the worst crisis in its long and distinguished history. When the dust had finally settled, three members of the company's senior management had resigned or been reassigned, the company had been required to pay substantial fines to securities regulators, and the group's reputation-- embodied in the familiar phrase, “As Sure as Shell”--had been badly dented.
The Shell affair has caused legislators, 1 securities regulators, investors, financial analysts, auditors, geoscientists, petroleum engineers, and others to focus more carefully on the nature and reliability of mineral and petroleum reserves and the laws and regulations that govern their disclosure to the public. At the same time, many within the mining and petroleum industries have used the Shell experience to voice, once again, their dissatisfaction with the approach adopted by the U.S. Securities and Exchange Commission (the SEC) with respect to the regulation of mineral and petroleum reserves disclosure. Despite the Shell affair, reserves continue to be a key “metric” used by investors to form a vie