SEC Staff Provides Guidance Regarding New Oil And Gas Reporting Requirements

Author:Mr Michael Telle, William S. Anderson, Charles H. Still, Jr., Gary W. Orloff, Brett A. Owens and Connie S. Stamets
Profession:Bracewell & Giuliani LLP

On October 26, 2009, the Staff of the U.S. Securities and Exchange Commission issued guidance regarding the recently amended oil and gas reporting requirements. These twenty questions and answers address several issues that have caused uncertainty for issuers and their reserve engineers, accountants and attorneys in preparing to implement the new rules. To access the Staff guidance, click here.

Separately, on October 30, 2009, the Staff published Staff Accounting Bulletin No. 113, to update Topic 12, Oil and Gas Producing Activities, of the codification of SABs to make it consistent with the new rules.

The new rules become effective for registration statements filed on or after January 1, 2010 and for annual reports on Forms 10-K and 20-F for fiscal years ending on or after December 31, 2009. To access the new rules, click here, and to review our prior alert summarizing the new rules, click here.

Reliable Technology The Staff's guidance confirms that the utilization of "reliable technology" in booking reserves carries with it a verification and record-keeping obligation.

Under the new rules, companies may use reliable technology to establish the requisite level of certainty for the assignment of reserves. Rather than adopting a static list of technologies that it would accept, the SEC defined "reliable technology" as technologies that have been "field tested and . . . demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation." In discussing the definition in the adopting release, the SEC stated that the new standard will permit the use of new technologies "once a company can establish and document the reliability of that technology."

In its guidance, the Staff further clarified that the burden of establishing and documenting the reliability and consistency of a proposed reliable technology is upon the issuer and that this information must be made available to the Staff upon request. Neither the final rules nor the Staff guidance contains a bright line test as to when a technology will be regarded as reliable (the proposing release included a 90% success rate threshold which was not ultimately adopted).

The Staff's guidance confirms our view that issuers should adopt internal procedures to capture data regarding the reliability of technologies, should record and document which technologies are used in booking reserves, and should be prepared to produce this data to...

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