Shell's mistake in estimating its proven reserves correctly has resulted in the company listening to `music,' which is uncalled for.Recently, Royal Dutch/Shell (Shell) shocked the oil industry with the admission that its proven oil reserves were lower by nearly four billion barrels than previously reported. This implied that nearly a fifth of its proven reserves were reclassified as probable reserves.

In the oil industry, a firm is valued by the quantity of proven reserves it has. That the third-largest energy company has done it, which was considered to be more inward looking and bureaucratic has caught the eye of the corporate world. Shell, however, has announced that over 90% of the total change is a reduction in the proved undeveloped category and the balance is a reduction on the proved developed category.

Though it is not uncommon in the oil and gas industry for reserves to be reduced, the amount in Shell's case was unprecedented. Analysts have cited several reasons behind this reclassification. Questions have been raised on its organizational structure, management, its reporting system for reserves and the group's inability to cash in on the opportune moment for acquisitions.

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