The Shell fiasco, which cost several senior executives their careers, was well documented at the time. Essentially, it came down to a question of timing, and whether Gorgon was proceeding as a development.
The crossover from a prospect to a firm development project is the time when a resource in the ground can make the transition to a “bookable” reserve. In Shell’s case, a lack of major new discoveries, backed by premature confidence that Gorgon would go ahead led to an early booking – and then a very embarrassing “unbooking”, followed by a confession that its 2002 reserves were overstated by 41%.
This time around Chevron wants to Gorgon into the reserves category as soon as possible.
Like Shell, Chevron has joined the league of oil majors not replacing reserves as fast as they would like using the conventional discovery route. Acquisition was the only way Chevron was able to claim late last week that its fourth quarter reserves were higher than a year earlier.
The Slug’s reading of Chevron’s statements is that earnings were strong – up 20% on the fourth quarter of 2004 to $US4.1 billion – a commendable effort given that hurricanes in the Gulf of Mexico upset everybody in the three months to December.
But, deeper in the Chevron announcement was the admission that much of the improved result was attributable to the purchase of Unocal last August.
That especially applied to the reserves figures, a point seized on by financial analysts who are starting to question whether big oil really has come to the end of the road in terms of being able to replace what is produced.
In Chevron’s case the company was able to claim that it added 1.5 billion barrels to reserves in 2005, comfortably outstripping the 870 million barrels produced. But the fine print reveals that Unocal alone was responsible for adding 1.75 billion barrels to reserves.
Chevron boss, Dave O’Reilley, admitted that without Unocal the reserves replacement ratio (RRR) would have looked crook. He told a media briefing that if Unocal had not been acquired Chevron’s RRR “won’t be zero, but it will be low”.
O’Reilly said future RRR numbers would be better because Chevron was working on several big projects, and was “discovering oil and gas”. But it would take time to prove the commercial viability of discoveries so they could be added to reserves.
“We have a strong queue of projects and we’re going to be booking a substantial amount of reserves from our projects,” he said. Top of that list of projects is Gorgon, followed by gas earmarked for LNG projects in Angola and Nigeria.
For Australian followers of the oil business, the position of Gorgon as a celebrity gasfield in the life of Shell, and now Chevron, adds a bit of spice to the rush to win all the necessary environmental and other development approvals.
The issue of declining RRR for both oil majors also goes some way to explaining why Gorgon, a series of gasfields which are difficult, deep and “dirty”, with their high carbon dioxide levels, has become a priority development target.
