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Deloitte Recommends Regulatory Update on Reserves Reporting

Consulting firm Deloitte & Touche LLP in a new report is urging regulators to update global reporting requirements for oil and natural gas reserves to both improve information available to markets and restore confidence in reserves reporting.

Victor A. Burk, chairman of Deloitte's Global Oil and Gas Group and the report's co-author, said that "confidence has waned" on reserves reporting since the restatements in the past year, notably by Royal Dutch/Shell Group and El Paso Corp.

Current reserve disclosures and definitions are based on Securities and Exchange Commission rules that were introduced in 1978. However, petroleum engineers worldwide have "significantly" updated the structure and definitions for categorizing reserves. The information used now "generally relates to 'probable' as well as 'proved' reserves," estimated using data capture and analysis techniques developed over the past 25 years.

"Regulators should work together globally and adopt the definitions and categorization structures already endorsed by the petroleum experts and widely used within the industry today," said Burk. "The continuing focus only on 'proved' reserves information is limiting and is prone to misinterpretation."

In the six-page report, Deloitte offers suggestions to promote disclosure of "fuller and more meaningful" information on reserves, including the following:

"Reserves are fundamental to the financial statements of upstream companies and the current disclosure requirements do not adequately reflect this," Burk said. "Significant improvements are needed to the reserve disclosures available to markets as this information is so vital to users in assessing business performance and in calculating reported income." The full report is available at www.deloitte.com/us.

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