BP defends oil reserve estimate method
LONDON -- BP PLC on Monday defended its method of estimating oil and gas reserves, and said that its figures would not show a "material" change when it recalculates them for submission to regulators in the United States.
However, London-based BP left open the possibility that its reserves might differ somewhat when it restates them in a filing with the U.S. Securities and Exchange Commission later this month.
Reserves are a vital asset for most oil companies, and firms have come under scrutiny for the way they estimate their reserves since Royal Dutch Shell Group of Cos. downgraded its oil holdings by 23 percent, or 4.47 billion barrels. Shell, BP's biggest hometown rival, made four separate revisions of its reserves this year, shocking the markets and forcing the resignation of several top Shell executives.
Although BP has its headquarters in the United Kingdom, it is registered to do business in the United States and must therefore file its annual financial statements and details about its reserves with the SEC. BP listed its reserves at 18.3 billion barrels of oil and oil equivalent in its 2003 annual report.
"We are confident in the reserves numbers that were booked in our UK annual report, and we are confident that these numbers are compliant with SEC regulations in all material respects," a company spokesman said, speaking on condition of anonymity.
BP plans to submit information to the SEC in a document known as a 20-F. In its filing, BP will reconcile reserves currently booked under British accounting rules with U.S. standards, which analysts say are slightly more stringent.
BP has made 20-F filings for many years, but a person knowledgeable about the filings said there have so far been no differences when the company reconciled its reserves from the British accounting method to the American system.
U.S. investment bank Goldman Sachs has warned that BP's reserve estimate for the SEC might come in 3 percent lower than the estimate it made under British rules - the UK Statement of Recommended Practice.
"We don't view either base of accounting as being superior to the other. They are simply different," the bank said in an investor report it issued last week.
The bank said a 3 percent difference in reserve estimates would probably have no financial implication for BP but said that it could affect investor sentiment, given the recent uproar over Shell. It was unclear how Goldman Sachs estimated that BP's reserves might vary by 3 percent. The bank did not immediately return phone calls seeking an explanation.
Market reaction would depend on the size of any downgrade in BP's reserves, said Deutsche Bank analyst J.J. Traynor, speaking from his office in Edinburgh, Scotland. He agreed that a 3 percent downgrade would probably have little impact.
Traynor added that BP has been clear about the standards it uses to calculate its reserves.
"I don't think there's any big scandal here," he said.
BP shares fell 0.8 percent to close at 478 pence ($8.70) Monday on the London Stock Exchange.