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SEC will not change rules on oil reserves

Financial Times: SEC will not change rules on oil reserves

Adrian Michaels in New York and Carola Hoyos in London

Jun 23, 2004

US regulators have for now ruled out changing their controversial rules on oil industry reserves amid fall-out from the Shell scandal and would prefer companies voluntarily to reveal more details.

The Securities and Exchange Commission’s rules date back to the late 1970s with occasional guidance updates. The industry has criticised them for being vague and out of date.

Royal Dutch/Shell, Europe’s second largest listed energy group, revealed in January that it had incorrectly booked more than 4bn barrels, or 20 per cent, of its proven reserves with the SEC. Shell argues that the error was, in part, caused by unclear SEC rules.

The SEC is in the early stages of a review of the situation and is veering towards voluntary increased disclosure. This might come, oil industry experts said, particularly in relation to geographic location of reserves, as well as the success and promptness with which companies convert preliminary oil and gas findings into marketable oil.

John Heine, SEC spokesman, said: “While many people have suggested that the SEC change the disclosure requirements for oil and gas companies, the commission is not currently considering any rule changes that are specific to oil and gas companies, nor has the division decided whether or not to recommend . .. any such rule changes in the future.”

Shell used to split its reserve details into eastern and western hemispheres. Separately, there has been controversy about how long companies cite the existence of “proved undeveloped” reserves without making them developed reserves.

One exception to opaque disclosure in the industry is Anadarko, the largest US independent oil company. It indicated to investors the health of its reserve bookings by revealing the age of its proved undeveloped fields in its 2003 annual report.

The SEC is encouraging all companies to explain much more about their accounting in the section of their accounts known as Management’s Discussion and Analysis, or MD&A. The introduction of any regulation depends on whether companies comply voluntarily.

Mr Heine said: “The division is evaluating the disclosure of oil and gas companies in light of recent developments, including the requirements of the [corporate governance] Sarbanes-Oxley Act of 2002, the Commission’s [MD&A] guidance of December 2003 . .. and recent market events.”

© Copyright The Financial Times Ltd

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