Modernization of the SEC Oil and Gas Reserves Reporting Requirements

Modernized US Securities and Exchange Commission (SEC) rules for reporting oil and gas reserves are now broadly consistent with the SPE definitions and generally reflect public requests for specific changes in the previous rules. Disclosure requirements based on the revised definitions feature use of annual average prices; wider use of reliable technologies; broader recognition of nontraditional resources, including those from oil sands, shales, and coal; optional disclosure of probable and possible reserves; and replacement of the "certainty" criterion for some reserves by a "reasonably certain" criterion. Official clarification of some of the new terms may be forthcoming; here, I provide my opinion of their intent.

The US Securities and Exchange Commission (SEC) late last year unanimously adopted revisions to its rules governing oil and natural gas reserves reporting, with those revisions aligned with and incorporating many of the definitions in the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS). The revised rules will go into effect on January 1, 2010. The SEC oversees US securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. Companies publicly offering securities on US exchanges are required to file regular disclosures to the SEC, concerning their securities and the scope, practices, condition, and risks of their businesses with respect to investors. The changes just adopted by the SEC, announced December 29, 2008, marked the first major revision of the commission's reserves-reporting rules since 1983. "In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors," said Christopher Cox, then-Chairman of the SEC. "These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company's balance sheet, is of significance to investors in making informed investment decisions." Leo Roodhart, 2009 SPE President, praised the commission for modernizing the reporting rules. "The SEC is to be commended for updating the rules on oil and natural gas reserves reporting to reflect changes in technology, and for using the PRMS primarily as the basis for the technical changes," he said. "The updated rules recognize the importance of new technologies in making accurate and reliable estimates of oil and natural gas reserves as the industry develops resources in harsher environments, including ultradeepwater and the Arctic, as well as more unconventional resources." The PRMS was developed by SPE in collaboration with the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers (SPEE). "SPE's Oil and Gas Reserves Committee is gratified that our work has served as a foundation for improving the information provided to investors and the public about the reserves controlled by public companies," said Delores Hinkle, SPE Oil and Gas Reserves Committee Chairperson. "The updated rules allow companies the flexibility to provide additional reserve information to the investing public and should result in better reserve estimates, due to the inclusion of the advanced technologies and evaluation practices now in use around the world."

Purpose – The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting violations of the Securities Exchange Act of 1934 (Exchange Act) by public company officers, directors and significant stockholders. The paper considers the notable features of the first round of SEC enforcement actions pursuant to that initiative and proposes measures public companies and their insiders can adopt to enhance compliance with their reporting and related disclosure obligations under the Exchange Act. Design/methodology/approach – The paper examines the SEC’s enforcement initiative against the backdrop of the agency’s enforcement activity since 1990 for violations by public company insiders of the reporting provisions of Sections 13 and 16 of the Exchange Act. The paper summarizes the features of the reporting violations that attracted SEC enforcement interest in the recent proceedings and identifies the factors apparently weighed by the SEC in determining the amount of the penalties sought against those charged with the violations. Findings – The SEC’s latest enforcement actions are unprecedented for insider reporting violations. The new enforcement initiative represents an abandonment by the SEC of its largely passive approach of the past dozen years in which it charged insider reporting violations only when they related to fraud or other major violations of the securities laws. If reporting violations are flagrant, the SEC now promises to target the offenders for enforcement on a stand-alone basis without regard to other possible wrongdoing. The SEC also cautions that, as it did in some of the recent enforcement actions, it may charge companies that promise to assist their insiders in the preparation and filing of their reports, but do not to make the filings in a timely manner, with contributing to the filing failures. Originality/value – The paper provides expert guidance from experienced securities lawyers.

The SPE/WPC/AAPG/SPEE Petroleum Resources Management System (PRMS) published in March 2007 provides an international industry standard for classifying and reporting reserves and resources. Many companies have adopted PRMS directly, or in modified versions, as part of their internal asset management systems. However, publicly traded companies have historically been forced to maintain two sets of reserves and resources records: one for internal project and portfolio management, and one for regulatory disclosures. This may no longer be required for those issuers listed on U.S. stock exchanges. On December 29, 2008, the U.S. Securities and Exchange Commission (SEC) published revised rules for disclosure of oil and gas reserves that closely align with the evaluation principles and reserves guidelines contained in PRMS. The SEC mandates reporting of Proved Reserves while disclosure of Probable and Possible Reserves is now optional. These disclosures may be viewed as a subset of PRMS which also includes guidance on Contingent and Prospective Resources. While PRMS reserves are confined to projects that are economic based on internal price forecasts, the SEC requires use of 12-month historical average prices. However, the systems may be integrated with options to include supplemental assessments based on alternative pricing scenarios. Both PRMS and SEC accommodate deterministic and probabilistic estimates of "as sold" hydrocarbon products irrespective of the extraction method and interim processing required. This alignment allows the same resource evaluation to underpin both internal business processes (project tracking, portfolio management) and regulatory disclosures including reconciliations by category. It is now feasible to design a single database to support reporting requirements for both functions at multiple aggregation levels based on geographic area, product type, resource class, and resource category. Companies can now manage their business based on PRMS industry standards but accommodate SEC disclosures within a single integrated assessment system. In addition to allowing significant process efficiencies, a common system improves the linkage between technical and business analyses providing a clear audit trail.

PurposeThis paper aims to summarize the requirements of a new US Securities and Exchange Commission (SEC) rule regarding certain communications relating to security-based swaps in the context of the SEC’s ongoing efforts to establish its regulatory regime for such swaps.Design/methodology/approachThis paper provides a close analysis of an SEC final rule that provides that certain communications relating to security-based swaps will not constitute “offers” for purposes of Section 5 of the Securities Act of 1933, under which generally offers or sales of a security must be registered or made pursuant to an exemption from registration. The paper also analyzes the prospects for a general exemption from registration requirements for security-based swaps involving eligible contract participants, and it places the final rule in the context of the SEC’s broader efforts to establish its final rules for security-based swaps.FindingsIn addition to detailing the requirements of the final rule, this paper concludes that it is unlikely that the SEC will decide, generally, to exempt many security-based swaps from registration requirements, and that it is likely that a significant amount of time will elapse before the SEC finalizes most of its remaining rules for security-based swaps.Originality/valueThis paper contains valuable information regarding the regulation of security-based swaps in the context of securities regulation and the SEC’s other rules for such swaps.

This article, written by Senior Technology Editor Dennis Denney, contains highlights of paper SPE 124168, "Methodology for Integrated Reserves Management: Providing Regulatory Compliance and Im proving Decision Making," by Lev Virine, SPE, Project Decisions, and Doug MacDonald, SPE, Schlumberger Information Solutions, prepared for the 2009 SPE Annual Technical Conference and Exhibition, New Orleans, 4-7 October. The paper has not been peer reviewed. Effective corporate reserves-management systems enable tracking reserves to provide input for reporting to regulators and to serve as a decision-support system. Implementation of such reserves-management systems has challenges. Regulatory bodies, including the US Securities and Exchange Commission (SEC), require proper categorization of reserves on the basis of evaluating whether the volumes can be recovered economically in a timely manner. The reserves-management system should provide technical and economic volumes on the basis of up-to-date prices, capture and analyze uncertainties in the reserves volumes, provide secure data access and data archiving, and implement an approval and audit process. Introduction A method to integrate reserves management was developed that comprises three processes—data management, which ensures fast and secure access to reservoir data; economic and technical volume calculation; and a flexible reporting process. Reservoirs, as well as prospects, are organized within a corporate hierarchy. In accordance with SEC regulations and SPE/World Petroleum Council/American Association of Petroleum Geologists/Society of Petroleum Evaluation Engineers Petroleum Resources Management System (SPE-PRMS) guidelines, the data-management process captures proven, probable, and possible reserves, as well as discovered and undiscovered resources, for different petroleum products and companies with different working interests. Each category of each reservoir is associated with an economic case that contains information about costs, prices, and the fiscal regime. Economic volumes can be calculated on the basis of the results of economic evaluations of the reserves. Uncertainties in reservoir data are captured by use of multiple scenarios for each reservoir and category. A regional-pricing mechanism allows updating prices for all economic cases at a particular level of the corporate hierarchy. All changes to the economic-results data would be recorded and require approval. Challenges. Disclosure of oil and gas reserves is different from disclosure of company financial performance or production. While the financial performance of the company, at least in theory, can be calculated precisely, oil and gas reserves are uncertain by definition. Different proven methods of estimating reserves may yield different results. Moreover, different estimators that use similar methods may determine different numbers. New SEC regulations aim to improve transparency by providing investors with more information about the reserves. In particular, the new regulations permit disclosure of probable and possible reserves. It should be noted that information about probable and possible reserves also includes more uncertainties, compared with proven reserves.

Summary A key element in determining a project's commercial maturity is the evidence of a firm intent to proceed with development within a reasonable time frame. The Petroleum Resource Management System (PRMS) (SPE 2007) recommends 5 years as a benchmark, although a longer time can be applied in some cases. The U.S. Securities and Exchange Commission (SEC) also provides specific guidance and requirements on undeveloped reserves and the 5-year-maturation time limit. Despite the apparent clarity in the PRMS and SEC regulations regarding project maturity, this paper describes actual examples in the public domain in which different levels of commercial maturity were introduced within a project for proved and probable reserves as a result of the 5-year time limit. This has resulted in projects with their proved reserves reclassified as probable reserves because they will not be developed within the 5-year time limit. This paper reviews SPE standards and SEC wording on commercial maturity requirements and the 5-year time limit, providing clarity on whether a project's recoverable volumes should be classified as reserves or contingent resources if its undeveloped reserves are not matured into developed reserves within 5 years of their first reporting, and specific circumstances for a longer maturation time frame do not exist. When referring to projects with proved undeveloped reserves falling outside the 5-year time limit, the SEC uses different wording throughout the Final Rule document issued in January 2009 (NARA 2009). This has resulted in apparently different interpretations of the requirements for projects to meet this criterion. On the basis of the wording used in SEC forms 10-K and 20-F, public disclosures seem to range from reporting only the projects with undeveloped reserves that have been continuously disclosed for 5 years or more in the annual filings, to reporting all projects that have been or will remain undeveloped for 5 years or more from the time of their first disclosure date. Given the wording in the SEC Final Rule, it is understandable that different interpretations of the regulations may emerge. This paper presents an analysis of the SEC language used in the Final Rule and related wording used in SEC comment letters from the last few years. Failing further clarity from the SEC, this analysis provides the authors' opinion on the clarity required to ensure consistency in the way the SEC 5-year rule should be interpreted and in the spirit of comparability among companies that provides the basis for the SEC requirement to report these undeveloped reserves as a separate item. Another area discussed in this paper relates to the wording used by the SEC regarding a project's undeveloped-reserves volumes (i.e., its undeveloped reserves in barrels of oil equivalent) and the potential different interpretations that the industry may give to the SEC Final Rule. A simple example is presented to provide clarity on the option that is most likely to meet the SEC requirements. Potential inconsistencies resulting from different interpretation are highlighted. The analysis and recommendations presented in this paper aim at creating consistent approaches leading to better comparability among oil and gas companies by use of an aligned interpretation of standards and requirements for reserves estimation, classification, categorization, and disclosure.

The increasing importance of the index industry to the financial marketplace has drawn the attention of the US Securities and Exchange Commission (SEC). The use of custom, foreign, and narrow-based indexes and self-indexing has generated regulatory concerns, including possibilities of improper index selection procedures, misleading index descriptions, inadequate or misleading custom index disclosures, and self-dealing. Suggested remedies include requiring index providers to register with the SEC as investment advisers under the Investment Advisers Act of 1940 (act). Historically, index providers have relied on an exclusion from registration under the act; this proposal queries their entitlement to rely on the exclusion. If index providers are required to register, it is unlikely that regulation under the act would prove useful. Rather, enhanced disclosure and the application of existing securities laws, including those dealing with disclosure and antifraud concerns, and current SEC investigative and enforcement activities in appropriate cases should be sufficient to deal with the SEC’s concerns. <b>TOPICS:</b>Mutual funds/passive investing/indexing, information providers/credit ratings, legal/regulatory/public policy <b>Key Findings</b> ▪ Regulatory concerns are focused on possible abuses occurring in connection with custom, foreign, and narrow-based financial indexes, as well as self-indexing procedures, used by ETFs. These abuses include improper index component selection procedures, index manipulation, misleading index descriptions, inadequate or misleading custom index disclosures, self-dealing and blurred functions between ETF advisers and third-party index providers when creating custom indexes. ▪ One suggested remedy is to deem index providers “investment advisers” under the Investment Advisers Act of 1940 (act). This result would deprive index providers of their current ability to rely on the act’s “Publisher’s Exclusion” and, therefore, require their registration with the US Securities and Exchange Commission (SEC), as well as subject them to the act’s regulatory provisions, including its fiduciary duties and obligations. ▪ It is likely that index provider regulation under the act would not provide satisfactory solutions to the SEC’s concerns but, instead, would cause disruptive effects in the current financial index ecosystem, such as increased investor costs and diminished product innovation. Rather, the application and enforcement of existing securities laws, especially those dealing with disclosure and antifraud concerns and current SEC investigative and enforcement activities, where warranted, should be sufficient to deal with the SEC’s concerns.

The world's capital markets stand to benefit significantly from widespread acceptance and use of global accounting standards that are high quality, comprehensive and rigorously applied. The US Securities and Exchange Commission (SEC) announced in April 2007 a series of actions it intends to take relating to the acceptance of International Financial Reporting Standards (IFRS). To implement this, the SEC proposed in July 2007 amendments to Form 20-F and conforming changes to SEC Regulation S-X to accept financial statements prepared in accordance with IFRS without reconciliation to US Generally Accepted Accounting Principles (GAAP) when contained in the filings of foreign private issuers with the SEC. This paper analyses the forces driving convergence between US GAAP and IFRS and discusses the most recent activities by the SEC in relation to IFRS and international cooperation, including the SEC vote as of 15 November 2007, to allow foreign private issuers to prepare their financial statements using IFRS as issued by the IASB without reconciling to US GAAP.

Purpose – To explain an increasingly common practice of the US Securities and Exchange Commission (SEC) by which it seeks to “claw back” bonus and incentive compensation paid to CFOs of companies charged with accounting fraud, regardless of the personal involvement, knowledge, or culpability of the CFOs. Design/methodology/approach – This article details the facts underlying a recent SEC accounting fraud settlement through which two former CFOs of a company charged with fraud agreed to repay their bonuses and incentive compensation, despite not having been accused of any wrongdoing. The article goes on to outline the historic use of Section 304(a) of the Sarbanes-Oxley Act of 2002 (SOX), the provision that endows the SEC with this enforcement authority, in search of guidance for when and why the SEC may choose to exercise its authority under this provision. Findings – The SEC’s inconsistent use of its enforcement authority under Section 304(a) leaves chief financial officers potentially subject to individual liability and ill-equipped to modify their behaviour in order to prevent it. Originality/value – This article intends to raise industry awareness about the potential exercise of the broad enforcement power available to the SEC under Section 304(a) and call attention to the lack of guidance provided to corporate officers to avoid liability under this provision.

Purpose To analyze how the US Securities and Exchange Commission (SEC) has sanctioned broker-dealers (BDs) and registered investment advisers (RIAs) when cybersecurity breaches have occurred and to discuss whether the SEC is imposing a strict liability approach. Design/methodology/approach Describes the cyber-attack of a small RIA, the remedial steps the RIA took after the attack, the SEC’s enforcement action, why this particular case is noteworthy, and the case’s implications for RIAs and BDs. Findings RIAs and perhaps BDs may face strict liability from the SEC if they are victims of cybersecurity attacks. Practical implications Firms may want to address the likelihood of an SEC enforcement action if a breach occurs by reviewing recent enforcement actions, SEC reports and statements, and FINRA reports and statements. Originality/value Discusses the possible future of SEC enforcement actions regarding cybersecurity breaches.

Regulatory Path Dependency in Securities Regulation: Evidence from Israel and U.S.

The Rise and Fall of the SEC in Bankruptcy

The Canadian Securities Administrators (CSA) has proposed new guidelines governing the annual reporting of oil and gas reserves for Canadian companies. The guidelines require disclosure of both Proved and Probable reserves and associated value; inclusion of Possible reserves information is optional. Reserve disclosures are key criteria to establish relative company stock value. It is thus instructive to compare the CSA regulations to existing U.S. Securities and Exchange Commission (SEC) rules and further to guidelines endorsed by the Society of Petroleum Engineers (SPE). The CSA mandates disclosure of Proved volumes and associated future net revenues using two economic criteria: a forecast cost and prices scenario ("forecast case") and a constant cost and prices sensitivity scenario ("flat case"). The SEC Proved reserve is comparable to the "flat case" Proved reserve quantities in most instances. The CSA guidelines for Probable and Possible reserves conform closely to the current SPE published criteria. While recognizing probabilistic reserve assessments, the CSA has adopted the SPE guidance that reserves should not be aggregated beyond the "field" level using probabilistic summations. The CSA may allow so-called "cross-border issuers", those Canadian companies also listed on USA stock exchanges, the option to solely follow SEC constraints. SEC regulations specifically prohibit disclosure of Probable and Possible reserves in 10K filings but many U.S. companies refer to additional resource potential in "forward looking statements" in their annual reports. Canadian "cross-border issuers" may not have similar latitude. Unique to the Canadian regulations are rules regarding establishment of an internal company reserves committee and use of a qualified independent evaluator to audit assessment procedures and assets. Will the new CSA rules improve, or impair, the ability of Canadian companies to compete for investment dollars? Further, the Sarbanes-Oxley Act on CEO/CFO certification requirements may have some unique implications for Canadian oil and gas companies.

Purpose The purpose of this review is to unpack 2017-2018 US Securities and Exchange Commission (SEC) whistleblower developments and trends. Design/methodology/approach This paper draws on statistics in the SEC’s 2017 Annual Report to Congress on the Whistleblower Program and examines post-report SEC whistleblower activity, including three SEC whistleblower awards in March 2018 totaling $80 million+. Findings Several notable whistleblowing developments and trends have emerged in recent years, including an increase in total tips; an increase in international tips; higher-value awards, including multiple awards in excess of $20m; and interest in punishing companies that discourage and/or retaliate against whistleblowers. In addition, the SEC recently issued its first-ever award under the Exchange Act’s “safe harbor” provision. Originality/value This paper contains valuable insights about the activities and priorities of the SEC Office of the Whistleblower from experienced securities and white-collar-litigation lawyers.