Reporting of reserves and resources: the not so short path towards transparency

Abstract

In the free-market environment, one of the key performance indicators investors look for in listed oil and gas companies is the quantity, replacement and growth of the proved reserve base. For national governments and authorities, this resource base provides equally crucial information when planning, defining budgets, securing supply and establishing policies that stimulate investment and protect consumers. However, current codes to report reserves and resources lack a universal standard and in many cases have not been updated to reflect advances in technology.

In the absence of a clear set of universal standards, there is potential for inconsistent reporting of reserve figures that are not directly comparable to each other, or require substantial revisions. This in turn can leave investment decisions open to discretionary interpretation, with damaging consequences such as loss of credibility in reserves figures and the subsequent market volatility associated with uncertainties in the reserves and resources base.

Disclosing the basis for reserves and accounting estimation is fundamental in preparing an accurate company valuation. As the nature of reserves reporting relies on assumptions and estimates, a transparent framework for disclosure that meets the needs of users would be a huge step forward.

Both the US Securities and Exchange Commission (SEC) and International Accounting Standards Board have been actively working on reporting requirements. This presentation will explore the recent developments in oil and gas company reporting requirements, including those recently announced by the SEC.