Modernization of the SEC Oil and Gas Reserves Reporting Requirements

Abstract

This article, written by Senior Technology Editor Dennis Denney, contains highlights of paper SPE 123793, "Modernization of the SEC Oil and Gas Reserves Reporting Requirements," by W. John Lee, SPE, Texas A&M University, prepared for the 2009 SPE Annual Technical Conference and Exhibition, New Orleans, 4-7 October. The paper has not been peer reviewed. Modernized US Securities and Exchange Commission (SEC) rules for reporting oil/gas reserves are now broadly consistent with SPE definitions and generally reflect public requests for specific changes in the previous rules. Disclosure requirements based on the revised definitions use annual average prices and allow wider use of reliable technologies. They also allow 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 with a "reasonably certain" criterion. Official clarification of some of the new terms may be forthcoming. Here, the author provides his opinion of their intent. Introduction The SEC oil/gas reserves-reporting requirements in effect until the end of 2009 were adopted in 1978, with some associated requirements adopted through 1982. In the three decades since adoption of these requirements, the petroleum industry has experienced many changes. As examples, technology associated with recovery and characterization of petroleum accumulations has advanced dramatically; spot markets and transportation of sales products to market have grown and improved substantially; and economic production of nontraditional resources, such as bitumen from oil sands, has been established. These developments, and others, caused the SEC's reporting requirements to lag increasingly behind the capabilities of the petroleum industry. In 2007, the SEC created the position of "Academic Engineering Fellow" to help the commission's staff examine the need for modernizing its rules and to help the staff coordinate a project to propose modifications. In October 2007, the author was retained to fill this position. After review of public comments, the SEC approved and released final rules in December 2008. The new rules were published in the Federal Register of the National Archives and Records Administration on 14 January 2009. Official guidance clarifying the intent of unclear phrases that appear in the rules may come, eventually, from the SEC. Below are comments on some possible interpretations of these guidelines, although final interpretations lie only with the SEC. See the full-length paper for references and Web addresses to view them. Major Rules Changes These rules include revised reserves definitions, which are broadly consistent with the SPE/World Petroleum Council/American Association of Petroleum Geologists/Society of Petroleum Evaluation Engineers-Petroleum Resources Management System (SPE-PRMS) definitions (although important differences remain). Disclosure requirements based on the revised definitions include the following.