This month’s cover story on Sarbanes-Oxley compliance in the oil and gas industry discusses the issues that caused Congress to pass that bill in 2002 and President Bush to sign it into law. It also notes that acceptance is growing for the rigorous accounting standards required of public corporations.
Washington correspondent Nick Snow interviewed numerous senior executives with public accounting firms as well as audit consultants to learn the hurdles that still need to be cleared by companies in the energy sector. Make no mistake, they are formidable.
But in the end, many conclude that the intent of the law, which is to get management involved in setting up stringent internal controls and holding them accountable for the accuracy of financial reporting, is fair. Most corporate officials have accepted it despite the high cost of implementation.
Charles Swanson, a partner at Ernst & Young Americas and head of its oil, gas, and chemical sector, believes there may be less concern about compliance in the upstream oil and gas industry than in other types of businesses. He noted that E&P executives live in a world where risk is a way of life. They are accustomed to offsetting some of this risk by partnering with other companies for most of the wells they drill. As a result, these companies - operator and partners - use a rigorous approach to auditing one another. These internal controls are largely self-imposed and existed long before there was a government mandate. They were created because company executives knew it was in their own best interests to do so.
Snow says Sarbanes-Oxley is the most far reaching corporate accountability law since the Securities Act of 1933, passed by New Deal Democrats in the wake of the stock market crash of 1929, and the 1934 law that created the Securities and Exchange Commission. The accountants and consultants he interviewed generally believe the law will eventually achieve widespread acceptance.
If there had been a Sarbanes-Oxley Act in place sooner, there probably would not have been a WorldCom collapse or an Enron meltdown. If Bernard Ebbers, Ken Lay, and Jeff Skilling had been held accountable to more stringent financial reporting standards, Enron would not have soared to the heights it achieved nor would the company have collapsed like the house of cards that it was. And Bernard Ebbers would have been stopped before he swindled stockholders out of $11 billion.
Oil pricing speculation
In our February-March issue, Bernard Picchi suggested the possibility of a “superspike” in oil prices to as much as $100 to $150 a barrel in the event of a calamitous loss of production somewhere in the world.
Since his prediction, analysts with the influential investment bank Goldman Sachs have said that the world appears to be in the early stages of a “superspike period” that could see oil prices touch $105 a barrel in the next few years. The bank’s predictions are supported by thin spare capacity in the energy supply chain and long response times for bringing on additional capacity.
Goldman calls its superspike prediction of $105 oil “conservative.” OGFJ
