CERA: SEC should use SPE reserves definitions

Paula Dittrick
Senior Staff Writer

HOUSTON, Feb. 8 -- Cambridge Energy Research Associates recommends that the US Securities and Exchange Commission rely on Society of Petroleum Engineers (SPE) methods for oil and gas reserves definitions.

The SEC regulates reserves disclosures by companies whose shares trade in the US. Currently, the SEC applies standards for estimates of "proved reserves" that have changed little since 1978 (OGJ, June 20, 2005, p. 20).

The CERA report, "Beyond the Search for Reasonable Certainty," recommends that the SEC adopt SPE's oil and gas reserves definitions and rely on the SPE's Oil and Gas Reserves Committee (OGRC) to update reserves definitions and technical guidance.

The 43-page CERA report also suggested the SEC have representation on OGRC. CERA Chairman Daniel Yergin and David Hobbs, CERA managing director of oil and gas research, wrote the report, which was released during CERA's annual energy conference on Feb. 7.

They said the report built on CERA's 2005 special report on oil and gas reserves (OGJ, July 18, 2005, p. 20). Yergin said SEC officials had not had time to read the latest report, which took a year to compile.

In preparing the report, CERA researchers obtained comments from oil companies, accounting firms, and industry associations as well as input form institutional investors.

Hobbs called accurate, reliable reserves information "crucial to investors' confidence" in the industry.

"The ultimate objective is a modernized set of definitions and guidance that are complemented by a process for ensuring that they stay current and reflect best practices as they emerge, which would serve the needs of investors much better than the current system," he said.

Unconventional oil
Current SEC rules do not allow companies to publicly report all available data, Hobbs said. For example, SEC rules have prevented companies from counting Canadian oil sands in their publicly reported reserves numbers.

"Significant volumes of nontraditional resources, including mined oil sands, are expected to enter the global oil and gas markets over the coming years. The current SEC regulations—the 1978 System—do not properly cater to all of these volumes," the CERA report said.

Current SEC reserves disclosure rules "do not adequately provide forward visibility for likely levels of oil supply capacity at a time when anxiety about the sufficiency of these supplies is heightened," the report said.

Yergin and Hobbs advocate inclusion of all oil sands production and reserves to remove what they call "distortion from the reporting model."

"Activities that were once on the fringe of the supply mix are now entering the mainstream," the report said. "Many billions of dollars are being invested in bringing these volumes to market. Continuing ambiguity about the treatment of such volumes does not serve any stakeholder."

SPE response
Eve Sprunt, SPE president, issued a statement in response to CERA's recommendation.

"Our goal is to provide a common language that is suitable for adoption by international financial, regulatory, and reporting bodies, as well as by the oil and gas industry," Sprunt said. "Creating a universal standard will result in a more accurate global picture of current prospects and future energy supplies for the public."

Forming the foundation for this common language are the petroleum reserves definitions jointly developed in 1997 by SPE and the World Petroleum Council (WPC) and the resources definitions jointly developed by SPE, WPC, and the American Association of Petroleum Geologists (AAPG) in 2000.

OGRC recently completed a comparison of classifications and definitions used in seven other systems worldwide to identify best practices that potentially could be incorporated into an updated set of definitions.

To facilitate global reserves standards, SPE is working with the International Accounting Standards Board (IASB) and the United Nations Economic Council of Europe's Ad Hoc Group of Experts on the Harmonization of Energy Reserves and Resources Terminology.

SPE also is pursuing the integration of SPE/WPC/AAPG definitions into the United Nations Framework Classification.

Contact Paula Dittrick at Paulad@ogjonline.com.

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