Ashby takes issue with Slugcatcher's comment that "...reserve replacement ratio (RRR), ought to be simplicity itself, and all oil companies should follow the same set of rules, if only so that investors get a clear picture of where everyone stands when it comes to future production potential."
Reserves are an economic concept as much as a physical one, Ashby writes. As oil and gas prices change and are projected into the future, reserves go up and go down.
"What's more, those pesky production sharing contracts that cover most of the world's remaining reserves have the general effect of reducing reserves as price forecasts rise. But that's not Shell's fault, or any other company's fault, nor the industry's fault for that matter. That's just the way it is and Slugcatcher's wish for simplicity will never be realised.
"If there's any fault here perhaps some lies with regulators who, while striving for a consistent approach to reserves reporting across inconsistent international fiscal regimes, give investors a false sense of certainty about the numbers.
"When a high-profile company like Shell gets caught fiddling the numbers, at least the industry and investors start thinking more critically about what the numbers mean and searching for more detail - not more simplicity. I think this is a positive outcome.
"For example, Slugcatcher's point about the "unclear" reporting of two RRR numbers, misses the positive aspect of more information. While the all in method yields the official number Slugcatcher calls (b), the last thing I want to see is the RRR polluted by acquisitions or divestments and tossed about by year-end pricing adjustments. Anyone can buy reserves and make this number look good. I'm much more interested in the number (a), which focuses just on drillbit additions and revisions.
"But even if all this reserves confusion was somehow able to be fixed up, I'm afraid it still wouldn't guarantee that investors get a clear picture of what the future holds for production or share prices. Backward looking measures like RRR rarely do."
