Keynote Address:  Where Are We Headed in Reserves Reporting?

W. John Lee, Texas A&M University

The Petroleum Resources Management System (PRMS), adopted in early 2007 by SPE, WPC, AAPG, and SPEE, provides a rigorous system for classifying resources and for categorizing resources of various classifications, notably reserves. Then, in December 2008, the U.S. Securities and Exchange Commission adopted modified definitions and disclosure requirements for reserves. Many of the SEC’s definitions are consistent with PRMS and the new disclosure requirements reflect the SEC staff’s conclusions about information investors and analysts require in light of the new definitions.

While the new rules create opportunities for more complete reserves disclosures, many questions remain about what the results of the rules will be. The questions include the following:

• Given the opportunity to disclose proved, probable, and possible reserves in filings with the SEC, will filers take advantage of this opportunity to reveal more completely to investors the details of company assets? And will reserves in these categories be based on standards applied consistently by different filers?
• Given the opportunity to use technologies that have proved in practice to lead to appropriate levels of certainty for reserves disclosures (much more likely than not for proved reserves, as likely as not for proved plus probable reserves, possible but not likely for proved plus probable plus possible reserves), what technologies will filers actually use as the basis for their reserves estimations? And how persuasive will the arguments for use of these specific technologies be to the SEC staff?
• Given the opportunity to make much greater use of probabilistic methods for estimating proved, probable and possible reserves, how much will use of these methods in filings with the SEC increase? And will probabilistic methods be used extensively for reserves estimations based on methods other than the volumetric method? If so, what will the nature of these other methods be?
• Given the opportunity to disclose undeveloped reserves (both proved and unproved) for drilling locations beyond immediate offsets, what methods will filers use to estimate these reserves? What is the result of this change in rules likely to be?
• Given the flexibility in the new rules, what new ethical problems in reserves estimation and disclosure are likely to arise?

This presentation will provide insight into questions like those above, but will rarely attempt to predict what the answers will be. The petroleum industry will find the answers during the interesting times that await us in the next few years.

AAPG Search and Discovery Article #90098©2009 AAPG Education Department, Houston, Texas 9-11 September 2009