The new US Securities and Exchange Commission oil and gas disclosure reserves rules that came into effect for filings after Jan. 1 were intended to modernize definitions and give investors a clearer picture of reserves held by companies required to file with SEC.
The new rules require companies to disclose proved developed reserves and proved undeveloped reserves (PUDs) and make optional the disclosure of probable developed, probable undeveloped, and possible undeveloped reserves.
For PUDs, the new rules allow companies to claim reserves beyond offset locations immediately adjacent to developed areas if the company establishes with reasonable certainty that these reserves are producible economically within 5 years.
The new rules also eliminated a single-day yearend price for determining reserves. Companies now have to use an average yearly price.
Also new is that companies can book as reserves nontraditional resources such as the bitumen found in Alberta as well as use new technologies for estimating reserves.
Consequences of the changes
Judging from some yearend 2009 reserves submission these new rules have affected filings in many ways.
Ryder Scott Co. LP in its March-May 2010 newsletter summarized briefly some effects of these new rules.
Ryder Scott said companies have reported both upward and downward yearend revisions for the same properties. It noted that the new rules have boosted PUDs from shale gas plays but companies have removed reserves because of the 5-year limit for developing the PUDs unless they file an exception.
As an example of a PUD decrease, Ryder Scott said Cabot Oil & Gas Co. filed an exception for 16 bcf of gas equivalent (bcfe) of PUDs delayed by external factors; however, Cabot removed 120 bcfe of PUDs that fell outside the 5-year limit by reclassifying them to probable.
Ryder Scott noted that across the industry, proved reserves, including PUDs, also decreased because average 2009 commodity prices were lower than yearend prices.
For some companies, the lower prices and 5-year PUD development limit decreased reserves while the inclusion of offsets further from developed locations increased reserves. As an example, Ryder Scott said the net effect of these changes increased Bill Barrett Corp.'s PUDs. Bill Barrett increased PUDs by 64 bcfe for a basin-centered continuous gas accumulation in sandstone and decreased PUDs by 7 bcfe because of the 5-year limit.
Another example Ryder Scott gave was for Williams Cos. Inc., which realized almost no net effect by reclassifying 496 bcfe from PUD to probable because of the 5-year limit while adding 454 bcfe of PUDs through additional offsets.
Ryder Scott also said companies now have the option to file reserves using price sensitivities. It noted that because of low gas prices, Bill Barrett reported proved reserves using the 5-year strip price in a sensitivity analysis and that Williams cited reserves based on forward-market gas price scenarios. Williams also disclosed probable and possible reserves but said it would not file those categories in its 10-K report.
Ryder Scott also noted that some companies issued statements disclosing reserves under the SEC rules and Society of Petroleum Engineers Petroleum Resources Management System guidelines. It said in some cases that the SEC regulations were more restrictive than the SPE-PRMS.
As examples, Ryder Scott said OAO Novatek, an independent oil and gas company in Russia, disclosed that proved reserves with SEC standards increased to about 6.9 billion boe compared with about 7.7 billion boe under PRMS. Also Rosneft, another Russian company, disclosed 23 billion boe under PRMS compared with 15 billion boe under SEC rules that limit the inclusion of reserves after the expiration of a company's production license agreements.
Ryder Scott also noted that for Brazil's Petroleo Brasileiro SA (Petrobras), proved reserves increased by 8.5% under SEC rules because of recently subsalt discoveries while falling slightly under PRMS definitions.
Other disclosures
Other companies have filed disclosures since the Ryder Scott newsletter came out.
ExxonMobil Corp. based its 133% replacement of its 2009 production with proved reserves additions of 2 boe on long-term pricing that it uses to make investment decisions.
Tri-Valley Corp. recently reported yearend 2009 reserves of 9.8 million bbl compared with no reportable barrels at yearend 2008.
It attributed its inability to book yearend 2008 reserves to the dramatic fall in 2008 yearend commodity prices. Its yearend 2009 reserves also include 6.8 million bbl of probable and possible reserves that could not be disclosed under SEC's prior rules.
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