The Times: SEC in U-turn on oil reserves reporting
By Carl Mortished, International Business Editor
April 23, 2004
A SUDDEN change to a key rule governing the reporting of oil and gas reserves threatens more turmoil among the world’s oil multinationals, already rocked by the scandal of reserves misreporting at Shell.
The Securities and Exchange Commission, America’s stock market regulator, has made a dramatic policy U-turn, allowing companies to use technology to prove the quantity of oil in a reservoir. But the SEC’s sudden reversal of its policy of rejecting technology will cause a furore among major oil companies because the new policy only applies to exploration in the Gulf of Mexico.
Under heavy pressure from industry leaders, such as ExxonMobil, to modernise its rules, the SEC has made only a partial concession and the regulator’s decision will add to the row surrounding reserves reporting at Ormen Lange, the huge Norwegian gasfield owned by Shell, BP and Norsk Hydro. In its second reserves upset, Shell last month removed most of the gas it had booked as “proven” from Ormen Lange, claiming that SEC rules did not allow it to book all of the known gas in the reservoir. Under the “old” rules, based on industry practice in Texas in the 1950s, companies cannot rely on computer technology, such as three dimensional seismic surveys, to map out the full extent of oil or gas in a reservoir.
Shell’s decision to apply SEC rules to the letter caused a row with its partners, BP and Norsk Hydro, both of which insist they are right in booking all their entitlement.
The new SEC policy was set out in a letter by Roger Schwall, assistant director, dated April 15 and addressed to oil company finance directors. He suggested that seismic surveys are permitted but he deliberately restricts this ruling to the US. He wrote: “Please understand that we take this position only with respect to the determination of proved undeveloped reserves in the deepwater Gulf of Mexico and no other location.”
The SEC’s refusal to make its decision global will further confound oil multinationals, such as BP, Shell and ExxonMobil as they make huge deep water investments in West Africa based on 3-D seismic surveys. A leading industry analyst said: “If the SEC say these rules have to be applied to the letter, every oil company will have to unbook reserves.”
The SEC has been trying to police rules flouted by oil companies in the Gulf of Mexico. The regulator launched an inquiry in October 2002. There followed a silence from the SEC until last week’s letter.