The Wall Street Journal: SEC Won't Attend Public Forum On Oil Reserves
By JOHN M. BIERS
Of DOW JONES NEWSWIRES
March 25, 2004 8:49 p.m.
HOUSTON -- Despite stepping up oversight of oil and natural gas reserves, the Securities and Exchange Commission plans to skip an industry forum that oil companies view as a rare chance to hear regulators publicly explain the rules.
The SEC's decision to skip the annual Society of Petroleum Evaluation Engineers meeting later this year comes amid growing investor unease about the energy sector in light of large reserve restatements by Royal Dutch/Shell Group (RD), El Paso Corp. (EP) and others.
"It's not a good time to go dark," Ronald Harrell, chief executive of energy consultant Ryder Scott, said at an industry gathering Thursday. "There's not a well-established method by which (the SEC) can inform industry of the rules," Harrell told Dow Jones after his speech.
During last year's SPEE forum, the biggest with 209 attendees, energy companies asked SEC staff for clarification on unconventional gas reserves, international projects and a number of other rules.
While the SEC's two-man reserves team has sometimes spoken at other public events, participants of the SPEE forum say the petroleum society gathering is unique in scope.
The SEC includes guidelines on how to book reserves on its Web site, but hasn't, for example, made public letters evaluating company policies or directing companies to lower their reserve estimates. The SEC's tiny reserves staff is regarded as accessible, but industry officials complain many of the rules are outdated or unclear.
SEC spokesman John Heine had no comment on why the agency was skipping the forum this year.
Reserves Are Key Financial Benchmark
A key financial benchmark, energy reserves measure the oil and natural gas an energy company can produce. Oil companies are supposed to book reserves only when they have a concrete plan for developing the energy.
Shell 's shocking move earlier this year to cut reserves by 21% has revealed the lack of uniformity among oil companies in booking reserves. Shell 's move last week to downgrade reserves for a Norwegian natural gas field raised questions about partners that booked reserves for the project.
The confusion is hurting energy companies, according to a recent letter from Deutche Bank to the SEC that pleads for guidance. The result in the post-Enron era "is generating an unwarranted external push on the oil companies to underbook reserves, and therefore overamplify costs," Deutche said in a letter
The letter - which Harrell called "somewhat revolutionary" - advocated allowing oil companies to present their own reserve estimates to accompany the more conservative calculation required by the SEC, which is based on rules that Deutche analyst J.J. Traynor said "look outmoded."
"This has the knock-on effect of reducing market values, and negative implications for the oil company's ability to raise finance," Deutsche said.