Ernst & Young LLP event examines imminent complex disclosure rule

 

 

 

HOUSTON, Dec. 21 /PRNewswire/ -- More than 100 energy company financial executives gathered in Houston this month to discuss complex new Securities and Exchange Commission (SEC) rules that left many unsure how or when to report probable and possible reserves.

 

The changes, which will go into effect for 2009 year-end reporting, remain unclear. The rules, in part, essentially require producers to determine which reserves will be developed within five years, a prediction many operators feel they cannot make with surety.

 

"Many operators are waiting to see what they are going to do, but many are saying they are not going to book their unproven reserves," John Lee, Regents Professor of Petroleum Engineering, Texas A&M University, told the group at the Ernst & Young LLP-sponsored event.

 

Lee, who was an SEC fellow from 2007-2008, explained that as currently worded, and following some guidance from the agency on October 26, 2009, the five-year rule applies:

 

• to undrilled locations classified as having proved undeveloped reserves only if a development plan has been adopted that indicates they are scheduled to be drilled within five years (unless specific circumstances justify longer time); and

 

• any unproved reserves.

 

Lee predicted that the SEC could clarify the rule by having it apply only to "proved" reserves. He told attendees not to expect any more clarification or guidance from the agency before year's end.

 

According to an Ernst & Young survey of energy companies polled in December 2009, 83 percent would not disclose probable and possible reserves in their upcoming 2009 10-K, with the remaining 17 percent saying they were undecided. The same survey in September 2009 found that 53 percent of companies would not disclose these reserves while the number of those who remained undecided was 47 percent.

 

"Companies' are adjusting their policies to comply with the new rules," said Marcela Donadio, who leads Ernst & Young LLP's America's Oil & Gas Sector and moderated the day's discussions. "However, given the nature of reserves reporting we will continue to rely on assumptions and estimates. In the future, we hope to have more clarity on the new distinctions between probable and possible reserves reporting disclosures."

 

About Ernst & Young's Americas Oil & Gas Center

The oil and gas industry is faced with complex issues and constant change. Volatile prices, business consolidation, difficult operating environments, ever-increasing customer demand, continuously evolving regulatory environments and the reliability of supply all present significant challenges. The Ernst & Young Americas Oil & Gas Center can draw upon a network of energy professionals in the Americas and around the world to work closely with clients to facilitate the development of coordinated approaches to managing risk, improving performance and increasing operational effectiveness. The Center works to anticipate market trends, identify the implications of and develop points of view on relevant industry issues. Our deep energy industry focus helps Ernst & Young make a difference.

 

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

 

 

SOURCE Ernst & Young LLP

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