The Securities and Exchange Commission (SEC) is looking for input as it begins the process to revise the reserves disclosure requirements for oil and natural gas producers.
The current reserves disclosure requirements were adopted between 1978 and 1982, but in the years since, commissioners noted that "significant" changes have occurred in the industry.
"The extent and pace of changes in the oil and gas industry, and public concern that our oil and gas reserves disclosure requirements are not fully aligned with current industry practice, have led us to reconsider those requirements," the commission members stated. "There have been significant technological advancements, changes in the oil and gas markets, and changes in the types of projects in which companies invest since the commission adopted these rules and disclosure requirements. Many in the oil and gas industry, including some oil and gas companies, professional organizations and analysts, believe that our oil and gas reserves disclosure requirements have not kept pace with industry changes.
"Others...suggest that our reserves disclosure requirements prevent an investor from viewing the company through management's eyes. These commentators also believe that our rules prevent companies from fully presenting the reasons for their oil and gas project investment decisions."
Because of the "scarcity of relatively accessible petroleum reserves that companies can extract using conventional techniques, companies are increasingly looking to resources that are more difficult to access due to their geologic or geographic location or require specialized extraction techniques," said the commissioners.
The SEC's "proved reserves" definitions were set by the Department of Energy in 1978 based upon definitions used by the Society of Petroleum Engineers (SPE) and the industry at that time. Since then, the SPE has made "several significant revisions" to its classification framework, with the most recent version, the "Petroleum Resources Management System" issued in February.
"We understand that oil and gas companies may use this classification framework to prepare reserves estimates for purposes other than their SEC filings and that investors in private financing transactions and participants in business combinations may use this framework as well," commissioners wrote.
Because of the "extent and pace of changes," the SEC is seeking public comment on 15 issues, including the following:
Comments may be submitted to the SEC using its Internet form at www.sec.gov/rules/concept.shtml. Include File No. S7-XX-07 on the subject line. Paper submissions, which should include a reference to File No. S7-XX-07, may be sent in triplicate to Nancy M. Morris, Secretary, SEC, 100 F St., NE, Washington, DC 20549-1090.
For more information, contact Mellissa Campbell Duru or Dr. W. John Lee, SEC Division of Corporation Finance, at (202) 551-3740; or Mark Mahar, SEC Office of the Chief Accountant, at (202) 551-5300.
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