Shale Daily / NGI All News Access

Quicksilver Subpoenaed in SEC 'Overbooking' Probe

Quicksilver Resources Inc. is the latest company to disclose that it has been served by the Securities and Exchange Commission (SEC) with a subpoena seeking information on proved developed producing (PDP) shale gas wells and reserve estimates from Jan. 1, 2008.

"On July 26, 2011, we received a subpoena duces tecum from the SEC requesting certain documents," Quicksilver said in a Form 10-Q filed with the SEC Monday. "The SEC has informed us that their investigation arises out of recent press reports questioning the projected decline curves and economics of shale gas wells. We understand from the SEC that a number of other shale gas producers received similar subpoenas."

The SEC probe came to light last week (see Shale Daily, Aug. 3). On Friday Tudor, Pickering, Holt & Co. Inc. (TPH) said in a note that EXCO Resources Inc. had been served with a subpoena in what analysts said "feels like a witch hunt" because EXCO's PDP wells "have steadily increased" in both estimated ultimate recovery and performance.

Other companies filed their 10-Qs before receiving similar subpoenas from the SEC, "so don't single these shale producers out," TPH said in a note issued after Quicksilver's disclosure. "Can someone show the SEC the EIA-914 data; gas production and resource is clearly growing?"

Rep. Maurice Hinchey (D-NY) in June called on the SEC and the Energy Information Administration to look into the issue after a New York Times article alleged that shale gas producers may be "intentionally overbooking" their reserves (see Daily GPI, June 28).

Following investigations into Royal Dutch Shell and El Paso Corp. for overbooking of reserves, the SEC in late 2008 updated its regulations for reporting reserves by oil and gas companies, enabling them to report probable and possible reserves along with proved reserves (see Daily GPI, Dec. 31, 2008). The SEC's action revised then-existing rules, which were adopted more than 25 years ago, that allowed producers to disclose only "proved" reserves in their filings. To classify reserves as proved, a company was required to be reasonably certain, based upon geological and engineering data, that it could economically recover them. The move toward more expansive reporting of reserves reflected the "significant changes" in the oil and gas industry, including improved technology and alternate resources, since the adoption of the original reporting requirements between 1978 and 1982, the SEC said.

On Monday Quicksilver said it set another production record in the second quarter and rebounded from a 1Q2011 net loss with net income of $109 million (61 cents/share) in 2Q2011 (see Shale Daily, Aug. 9). Production in the Barnett Shale, which has been a primary driver of the company's recent growth, is expected to ramp up through at least the end of the year, according to the Fort Worth, TX-based exploration and production company.

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