‘The directors have said that there are no excuses and none of this should have happened,’ says Ron van den Berg, chief executive, Middle East, Russia and CIS, Shell Exploration & Production (E&P). ‘However, the oil and gas is still there, and the group expects to rebook around 85 per cent as proved reserves over the coming decade.’

After downgrades that took 23 per cent off Shell’s oil stocks, rebooking the reserves might prove easier than rebuilding reputations. In four successive reassessments, starting in January, the group slashed its proven reserves by more than 4,700 million barrels of oil equivalent (boe) to 14,350 million boe. Shell’s initial statement on the matter said: ‘A number of countries are affected by the change, with the largest in Nigeria and Australia.’ A more detailed report published in February cited shortfalls in major assets in Oman, Norway’s Ormen Lange and Kashagan in Kazakhstan.

Heads rolled. Philip Watts, former chairman of the committee of managing directors, and Walter van de Vijver, chief executive of Shell E&P, resigned in March and were replaced by Jeroen van der Veer and Malcolm Brinded respectively. Both previous heads were condemned in an external report on the affair for withholding information about the group’s reserves for two years.

However, the recategorisation has raised a more profound debate about the future of the group’s Anglo/Dutch corporate and joint shareholder structure, which dates back to the partnering in 1907 of Shell Transport and Royal Dutch. A working group is investigating the extent to which the issues are linked. Other measures include establishing a global reserves committee and a comprehensive review of the group’s guidelines for reserves that will fully comply with US Securities & Exchange Commission regulations.

The rate at which Shell is falling behind its competitors in the crucial battle to replace depleting reserves is a more pressing concern for shareholders. Between 1998 and 2003, the group replaced its reserves at a rate of 66 per cent, which compared badly with 116 per cent for ExxonMobil Corporation of the US and a 153 per cent replacement rate for BP. However, Shell is adamant it can rebook at least 85 per cent of the hydrocarbons it lost in January over the next decade. And at the centre of this fightback is the Middle East.

‘If anything, the region has become more important for Shell,’ says Van den Berg. ‘In terms of production we are expecting to maintain our current equity share at around 500,000 barrels a day [b/d] for the next few years until new positions such as Qatar come on stream. In addition, we are envisaging substantial growth in the region through our gas and power business.’

Last year the company moved its entire regional headquarters for the Middle East, Russia and the CIS to new offices in Dubai, where it now employs 120 staff. Over the last five years Shell has added Saudi Arabia, Iran, Qatar, Libya and Iraq to its portfolio in the region, which already comprised activities in Egypt, Oman, Syria and the UAE.

Gas is at the forefront of this growth. The company is already exporting significant volumes through its participation in the liquefied natural gas (LNG) joint venture in Oman. ‘Because of its marketability, gas is now as important as oil and perhaps more important in terms of long-term sustainability,’ says Van den Berg.

In March, Shell signed a landmark heads of agreement to develop and explore oil and gas resources both on and offshore in Libya. But its biggest gas deal to date