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SEC Issues Accounting Guidance for Oil Firms

THE WALL STREET JOURNAL

Friday, OCTOBER 30, 2009

By IAN TALLEY

WASHINGTON — Staff at the Securities and Exchange Commission Friday issued new guidance on how the agency interprets oil and natural gas companies’ reserves accounting rules.

The guidance, sought by industry for years, allows companies such as Royal Dutch Shell, ConocoPhillips and Chesapeake Energy Corp. to officially book major reserves that previously haven’t been permitted by the SEC.

Specifically, the principal revisions in the guidance include changing the price used in determining quantities of oil and natural gas reserves and removing the exclusion of unconventional methods used in extracting oil and gas from oil sands and shale gas.

Instead of using year-end prices, which are typically lower and therefore produce lower reserve values, petroleum companies can now use the average price during the 12-month reporting period.

The updated guidance corresponds with an SEC rule-making approved late last year to modernize its oil and gas reporting requirements. Industry had previously said SEC’s rules were antiquated and didn’t adequately account for new technology or market innovations, devaluing official estimates on their prime assets.

Reserves accounting is one metric investors use to determine the health of a petroleum company.

Write to Ian Talley at [email protected]

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