SEC Changes Oil and Gas Accounting

The Securities and Exchange Commission has modernized its oil and gas company reporting requirements for the first time in more than 25 years.

"In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors," said SEC Chairman Christopher Cox (pictured) in a statement. "These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company's balance sheet, is of significance to investors in making informed investment decisions."

The new disclosure requirements permit the use of new technologies to determine proven reserves if those technologies have been demonstrated to lead to reliable conclusions. The new requirements also will allow companies to disclose their probable and possible reserves to investors. Currently, the rules limit disclosure to only proven reserves.

The new disclosure requirements also require companies to report the independence and qualifications of a reserves preparer or auditor; file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit; and report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximize the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date, according to the SEC.

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