Thank you for tuning in to our “Road to Reserves Reporting” series that posts new content every week. Please follow us at #CGAReservesReporting to see all the posts, which will accumulate into a very handy one-stop location to answer your reserves reporting questions. Today, we continue the series with a brief review of the SEC rules which govern public oil and gas company filings. Please post comments or questions below, or reach out to us via email at firstname.lastname@example.org. Enjoy…
The Securities and Exchange Commission (SEC) was created by the Securities Act of 1934 and its function is to enforce the Securities Act of 1933. However, the SEC did not issue its first rules specific to Petroleum definitions until 1978 and continued to expand these definitions until 1982. Before the passage of those rules, the industry had to rely on various definitions published at different times by API, AGA and SPE.
The Sarbanes-Oxley Act of 2002, the Society of Petroleum Engineers “Reserves Management System” publication in 2007, and the increased development of shale resources starting in the early 2000’s paved the way for the SEC to revise those rules. On December 31, 2008 the SEC formally adopted the “Modernization of the Oil and Gas Reporting Requirements” and these requirements became the standard for 2009 filings and beyond. Notably, these new rules adopted a “five-year rule” for undeveloped locations and introduced a new concept termed “reliable technology. They also provided the option, but not the requirement, for companies to disclosure reserves less certain than Proved, those being Probable or Possible reserves.
The SEC oil and gas reserves definitions are located in Regulation S-X (210.4-10) “Financial accounting and reporting for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975” and the disclosure requirements are located in Regulation S-K (229.1200) “Disclosure by Registrants Engaged in Oil and Gas Producing Activities”. The SEC has also made public additional guidance termed “Compliance and Disclosure Interpretations” presented in a Frequently Asked Questions format. A fourth important document for SEC reporting is The Financial Accounting Standards Board Statement No. 69, entitled “Disclosures about Oil and Gas Producing Activities”. The SEC has relied on FASB to set accounting standards, which have been validated many times both within the SEC regulations and through their comment letter process. These four documents compromise the official rules for booking reserves subject to SEC guidelines.
It is also important to be aware of the SEC’s comment letter process. Companies that file 10-K reports on US exchanges often receive questions and comments from the SEC via “Comment Letters”. Typically, these occur in a series of SEC letters and company responses which are usually made public and can be found on the SEC’s “Electronic Data Gathering, Analysis, and Retrieval” (EDGAR) website. Note that these comments are not policy documents, but they do offer insights in how the SEC is interpreting certain specific issues that arise in company filings.