DAILY TELEGRAPH (UK): Oil majors back attack on SEC rules: “The SEC is under pressure to reform its strict treatment of companies' oil and gas reserves. The issue has come under the spotlight since Shell admitted that, under the SEC's "proven" definition, it had exaggerated its reserves by a third.” (ShellNews.net) 24 Feb 05
By Christopher Hope, Business Correspondent (Filed: 24/02/2005)
Some of the world's biggest oil and gas companies have backed a report which is heavily critical of the way that America's Securities and Exchange Commission forces them to account for their reserves.
The report, which was supported by BP, Exxon Mobil and Chevron Texaco, among others, claimed that the SEC's definition of reserves accounting had "failed to keep pace with a changing, increasingly global industry" and "falls short of accurately describing industry and individual companies' values".
The SEC is under pressure to reform its strict treatment of companies' oil and gas reserves. The issue has come under the spotlight since Shell admitted that, under the SEC's "proven" definition, it had exaggerated its reserves by a third.
Dan Yergin, the chairman of the US's Cambridge Energy Research Associates, who co-authored the report, said: "The system of reserve reporting in the United States is in urgent need of modernisation. It is increasingly at odds with the realities of the oil and gas industry in the 21st century and does not properly inform investors about values and prospects of companies."
Mr Yergin continued: "It is a crucial misunderstanding to think of oil and gas reserves as being similar to inventory or a company's cash balances. They are not a fixed quantity capable of physical inspection or exact enumeration.
"Reserve auditors cannot enter the underground warehouse, that is, the pore space in a reservoir, and check off the barrels. They cannot correlate and add up reserves to a second decimal place, as they can with revenues and net income."
The SEC rules only let companies book proven reserves, which have a 90pc chance of recovery, rather than "proven plus probable" (a 50pc chance). Mr Yergin called for the US government to reform the rules which were first established in 1978.
The report said the proven measure was suitable for some fields but unsuited to the large bulk of the oil and gas industry, particularly large offshore projects.
A spokesman for the SEC said last night: "We will read the report with interest but have no immediate comment." A Shell spokesman said: "We did not participate in the report. We continue to follow with interest the industry debate on proved reserves, and look forward to continuing progress on the matter." BP declined to comment.
The report is the first time oil majors have laid out their objections formally to the SEC's rules.