SEC Proposal Ready for Comment
The SEC’s rule proposal announced in late June reflects many comments and urgings made at the 2007 Multidisciplinary Reserves Conference sponsored by AAPG along with SPE.
At that two-day conference held in Washington, D.C., before an audience of geologists, engineers, SEC regulators, accountants, attorneys and bankers, speakers strongly noted that significant changes have taken place in the oil and gas industry since the adoption of the original reporting requirements more than 25 years ago, and urged changes.
The proposed rule was developed after the SEC issued a Concept Release in December 2007, six months following the conference, requesting public input on a list of specific questions.
The Commission received about 80 comments, including one prepared by the AAPG Ad Hoc Committee on SEC Response. The SEC drew upon these comments and suggestions as it developed the proposed rule.
In a press release announcing the proposed rule, the SEC said “the proposed rule changes incorporate improved technologies and alternative extraction methods, and enable oil and gas companies to provide investors with additional information about their reserves.
“The more that precise, first-hand information from oil and gas companies is available to investors and the marketplace, the less that the marketplace is forced to rely solely upon information provided by speculators,” the commission said.
“The ability to accurately assess proved reserves is an important part of understanding any energy company’s financial position,” said SEC Chairman Christopher Cox, who attended a reception during the 2007 conference, “but the current oil and gas disclosure rules often interfere with an investor’s analysis because they are tied to outdated technologies.”
John White, director of the SEC’s Division of Corporation Finance and a speaker at the conference, added, “I am pleased that the Commission has acted on the staff’s recommended proposals to modernize the reporting requirements for oil and gas companies. The proposed rule changes will allow oil and gas companies to determine their reserves in a manner that is consistent with existing technologies.
“The proposed changes also will require companies to provide additional information that will allow investors to better understand the reserve quantities and the implications of those reserves on future operations,” White said.
The SEC’s proposed rule changes include:
- Permitting use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes.
- Enabling companies to additionally disclose their probable and possible reserves to investors. Current rules limit disclosure to only proved reserves.
- Allowing previously excluded resources, such as oil sands, to be classified as oil and gas reserves. Currently these resources are considered to be mining reserves.
- Requiring companies to report the independence and qualifications of a preparer or auditor, based on current Society of Petroleum Engineers criteria.
- Requiring the filing of reports for companies that rely on a third party to prepare reserves estimates or conduct a reserves audit.
- Requiring companies to report oil and gas reserves using an average price based upon the prior 12-month period – rather than year-end prices, to maximize the comparability of reserve estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date.
The full text of the proposing release to update disclosure requirements for oil and gas companies has been posted to the SEC Web site.