Shell strikes £5bn natural gas deal

Published on Monday 11 April 2005 12:01

SHELL, the Anglo-Dutch energy giant, today agreed a £5.3 billion deal to sell its share of liquefied natural gas (LNG) from Australia’s giant Gorgon gas fields to the United States.

The deal could go some way to replenish the group’s reserves, which it was forced to downgrade five times last year - a move that battered its reputation, led to the axing of top executives - including former chairman Sir Phillip Watts - and prompted a full-scale corporate restructuring.

In 1997, Shell booked as proven reserves some 557 million barrels of oil equivalent (boe) from the Gorgon field - a move that turned out to be premature. In January 2004, the firm revealed that it had overbooked total reserves by 20 per cent, forcing it to slash the most important measure of its investment value.

Today’s contract brings closer the prospect that Shell may now rebook the reserves.

The Gorgon booking alone accounted for 14 per cent of the resulting reserves cut. The deal - which will mark the first delivery of Australian gas to the west coast of North America under a long-term contract - will span 20-25 years from 2010 and commits 2.5 million tonnes per year (tpy) of LNG from the Gorgon development.

Ian McKenzie, Shell’s Perth-based general manager for government and public affairs, said: "Securing commitments for 25 per cent of Gorgon production is a very significant step and increases confidence that a final investment decision on the Gorgon project will be taken in mid-2006."

He added: "This deal is worth at least $10 billion (5.3bn) and it is the first supply deal to be finalised for the Gorgon project."

Asked when the reserves might be re-booked as proven, he said: "We have no reserves booked for Gorgon at the moment and we won’t be booking reserves until a number of SEC [Security and Exchange Commission] conditions are met."