Reserves reporting, used as a key measure by investors for assessing a company’s long-term financial prospects, has been hugely sensitive in the past. The 2004 revelation of misreporting of reserves by the Royal Dutch Shell group triggered official investigations and lawsuits. It cost executives their jobs and prompted a shake-up of the company’s management structure.
Many industry executives and experts argue that the SEC rules have become increasingly outdated as technology has advanced and “unconventional” resources such as oil sands have become more important. Investors have been increasingly focusing on other measures of companies’ performance.
“In the decades since adoption of the current requirements, there have been tremendous changes in the way reserves are measured and oil and gas companies do business, which are not yet reflected in our rules,” said John White, director of the SEC’s corporation finance division.
The SEC’s recommended proposals would allow oil companies to provide investors with “additional information” about their reserves, though the agency declined to comment further on Thursday. It is expected to propose the rules this summer, opening up a period for further public comment.
But regulators have been examining the issue since last year and have received about 80 letters on whether the SEC should revise its definition of proved reserves – including the criteria used to assess and measure them – and whether it should require third-party verification of reserves estimates.
Some oil and gas companies have been emphasising the much broader measure of resources to which they have access, rather than the SEC-definition proved reserves, in their communications with investors.
