Changes to Oil and Gas Reserves Reporting



Oil & Gas IQ
05/17/2010

India' state-owned Oil and Natural Gas Corp recently announced that it has added 83 million tonnes of oil and gas reserves in the 2009-2010 fiscal year, which is the highest figure from the company in two decades.

Reserves have gone up due to the Kasomarigoan discovery in Assam, South Mahadevpatnam, and Pennugonda in KG onland, GK-28-1 in Kutch offshore and PER-1 in Mumbai offshore.

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The Kasomarigaon and Pennugonda discoveries have already been put in production.

R S Sharma, ONGC chairman and managing director, said: "The reserve accretion is the highest in the last two decades, which is a commendable performance in the context of waning reserve accretion trend across the globe."

Importance of Oil and Gas Reserves Information

Of course, these figures are estimations and these are vital for the health of the oil industry and the wider economy, since reserve levels affect prices which have a major impact on global financial systems.

A Deloitte report explains: "Oil and gas reserves information is vitally important as a driver of market values of publicly quotes companies in the sector. It is also critical to the calculation of reported income, through its use in asset depletion and impairment calculations."

In 2004, Shell made a dramatic downward revision of its previously reported oil and gas reserves, which the report by said was a "momentous" occasion for the global industry.

"The Shell revelation triggered a torrent of regulatory, analytical and journalistic scrutiny of oil and gas reserves reported by many other companies across the industry," the article's authors, Peter Newman and Victor Burk, said.

New Regulations

This was part of the impetus behind the US Securities and Exchange Commission's recent alteration of the regulations on oil and gas reporting. The amendments revise rules four to 10 of Regulation S-X and came into force in January this year.

Among the alterations are changes to definitions contained in the regulations. Now, a 12-month average price is required instead of the single-day price to calculate oil and gas reserves and enhance comparability of estimates among companies. The intention is also to reduce the effects of seasonality and short-term price volatility.

New rules also direct companies to use first-of-the-month pricing to calculate the year's average, giving firms more time to prepare estimates.

In addition, the number of different technologies that can be used to establish reserves has also been extended.

Another amendment involves changing the definition of "proved undeveloped oil and gas reserves." These now use a "reasonable certainty" standard, rather than a "certainty" provision.

Additional Subpart

In addition, a new subpart of Regulation S-K has been added. This requires companies to disclose non-traditional resources, such as bitumen, shale and coalbed methane as oil and gas reserves.

Firms must also identify the technologies used to establish new or added oil and gas reserves, since the rule no longer specifies the type of system that must be used to make calculations.

Preparer/auditor qualifications are also required. This means a description of the company's internal controls for its reserves estimation and the credentials of the technical person primarily responsible for overseeing the preparation of the calculations or audit.

Similarly, third party reports on oil and gas reserves must be disclosed, mirroring the Society of Petroleum Evaluation Engineers guidelines for preparers' and auditors' reports.

With regard to proved undeveloped reserves (PUDs), narrative disclosure of the total quantity of PUDs is required at the year end. Companies must also communicate any material changes in PUDs that occurred during the year, including those converted into proved developed reserves.

In addition, firms must indicate any investments and progress made during the year to convert PUDs into proved developed oil and gas reserves.

Finally, an explanation of the reasons why material concentrations of PUDs in individual fields or countries have remained undeveloped for five years or more since disclosure of them is also required.