THE BUSINESS: Oil giants demand reform of SEC rules on reserves: “Missing from the list of backers is Royal Dutch/Shell, whose disastrous downgrades last year led the industry to look at flaws in the SEC guidelines.” (ShellNews.net) 20/21 Feb 05
By Richard Orange
THE world's leading oil companies will this week demand that the Securities and Exchange Commission (SEC), the main US financial regulator, reform its rules for reporting oil and gas reserves. The companies want the rules brought into line with the way they assess reserves internally.
BP's chief executive, Lord Browne, Total's boss, Thierry Desmarest, and Exxon Mobil's chairman, Lee Raymond, contributed personally to a report, drawn up by oil consultants Cambridge Energy Research Associates (CERA), It will be released on Wednesday.
The report also received funding and comments from ENI, ChevronTexaco, ConocoPhillips, accountancy firms Deloitte, KPMG and Pricewaterhouse-Coopers, leading geological consultancy Ryder Scott, and even representatives from the White House.
Missing from the list of backers is Royal Dutch/Shell, whose disastrous downgrades last year led the industry to look at flaws in the SEC guidelines.
The CERA report will argue that company reports to the SEC should include a measure for "probable reserves" as well as "proven reserves", bringing the regulator's rules into line with the way oil companies analyse their prospects. The report is also expected to question the use of year-end oil prices to assess reserves and will call for an end to inconsistencies that allow oil companies to use seismic imaging to determine reserves in deep water fields in the Gulf of Mexico but not elsewhere.
A source at one of the companies contributing to me report said it aimed to consult so widely and at such a high level that the SEC would be forced to respond. The SEC is already reviewing its rules. The source said: "There are a number of circumstances in which the SEC has been slow to react to developments in the industry and the gap between the regulator's view of the industry and the investors' view has become too wide."
The SEC has reacted angrily to past calls from the oil industry to reform rules, which critics argue were designed in the 1970s for onshore exploration in the US. The SEC said: "Our people are aware that there's a study coming up, written by some guy [CERA head Daniel Yergin] who wrote a book called The Prize, but we don't have any comment".
The report has already caused friction. Browne surprised CERA and the report's backers by leaking its existence at BP's results this month. He did not describe its content. Deloitte enraged the backers by pre-empting the report's release with its own reserves study on 10 February.