Royal Dutch Shell Evaluation of Oil Reserves — страница 13

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of reserves restatement anticipated by the market players after each announcement is rather uncertain. The complicated reporting methods proposed by SEC only add to uncertainty on this matter, since the volume of reserves restatement in company’s proved reserves may not be equal to the restatement in the overall reserves, as discussed in the previous chapter. Second, because the event did not happened in one day, but was starched along several month it becomes more difficult to filter out the reaction of the market on the company’s announcement about oil reserves restatement from other events that happened during this period of time. Given all the complications mentioned and given the issues discussed in Chapter 2, this chapter will be aimed at assessing the value of

oil reserves observed at the free market. 3.1 Estimation of Reserves Restated Amount In order to estimate market reaction on the announcement of reserves restatement by RDS, one should come to the conclusion about what restatement does market anticipates? As it has been mentioned above, the restatement did not come as a single announcement. In fact, there were two series of announcements. First three announcements were on January 9, March 18 and April 19, 2005. This series of announcements is called First Half Review. The First Half Review constitutes to reduction of total 4.47 billion barrels of oil equivalent that were booked as proved reserves in company’s annual report for 2002. As the result of this review, RDS postponed its 2003 annual report until late in 2004 and

therefore all the figures regarding oil reserves reported for 2003 already include the First Half Review restatements. Second series of announcements took place later in 2004 and 2005, namely on October 28, November 26, 2004 and February 3, 2005. During Second Half Review, Royal Dutch Shell further reduced its proved reserves reported for 2003 by another 1.37 billion barrels of oil equivalent (RDS Group: F-20 Form, 2004, p 3) This study concentrates on the First Half Review only. Whereas first announcement came as the surprise for markets, further series of announcements may well have been anticipated, as market participants started to watch Shell and Royal Dutch stocks more closely. This became especially true after Shell group audit committee engaged independent consultant firm

to investigate the re-categorization of reserves on February 3 and SEC filed the claim against Royal Dutch Petroleum in May 2004 (SEC v. Royal Dutch Petroleum Co., et al., 2004; Davis Polk & Wardwell, 2005). All these may lead to the fact that the market anticipated further restatements before they were actually announced and therefore some of it were already priced into the stocks. The best way in this case would be to include all six announcements into single event. However, such event study would hardly produce any statistically or economically reliable results, since during the period of more than a year a lot of other events influencing the stock prices would occur, which would be virtually impossible to filter out. The best example for such event is the oil price, which

nearly doubled itself during the period from January to October 2004. The influence of the oil price increase would push the stock price higher against the rest of the market and the effect of restatement would be lost. In order to avoid such economically unreliable results this study concentrates exclusively on First Half Review (from here on simply “restatement”). The restatement itself also consisted of 3 consecutive announcements. Timing and size of announcements are shown in table 3.1: Date of announcement Size (mboe) January 9, 2004 3900 March 18, 2004 250 April 19, 2004 320 (Source: Media Center) It is not entirely clear whether the market anticipated further restatements after each of the announcement. In fact, it could be the case that market

players expected larger restatement than the ones announced. Figure 3.1 (Source: DataStream) All the problems that were mentioned above can be shown on an example of figure 3.1. The figure shows the performance of the stocks of one of parental companies, namely Royal Dutch Petroleum. As one can see from the chart, the stocks fell quite sharply after the first announcement, but gradually rebounded afterwards. This rebound continued until the beginning of March when the rumors about the new restatement may have started to spread. The stocks then came down to the level significantly lower than they fell after the first announcement, although the volume of the second announcement itself clearly was not enough to cause this downturn. The stocks then came up towards the third