Independent certification needed on oil, gas reserves: consultant

Washington (Platts)--22Jul2004

Reforms to the way oil and gas companies collect and disclose reserve data
need to include some form of "third party expert certification" to insure the
data is accurate, a US House panel was told Wednesday. "Third party reserve
engineers do not need to calculate proven reserves just as CPA firms do not
need to produce a company's financial statements," Matthew Simmons, an
industry consultant, told the House Committee on Financial Services. 

"But it adds a degree of comfort to have an independent expert certify that
the data was properly prepared." The best data reform is for all global key
producers to begin "timely reporting of field-by-field daily oil and gas
production and accompany this new disclosure by the numbers of producing well
bores from each production unit," Simmons said. "Absent such data, there is no
way to even guess at future supplies by company or country."

Jonathan Duchac, an associate professor at Wake Forest University, said rather
than focus on the accounting rules surrounding reserve estimates, several
actions should be taken to improve reporting procedures. They include having a
well-developed and well-functioning internal control system surrounding the
calculation and reporting of reserve estimates; an independent audit; and
limiting the compensation incentives tied to reserve balances. Bala Dharan, a
Rice University professor, said the US Security and Exchange Commission's
disclosure rules are highly respected, but the agency's use of strict
definitions of the terms "proved" and "proved developed" reserves are "quite
conservative, if not too restrictive." Many industry observers "claim that the
SEC's standards are too rigid and that they have not kept pace with the
technological advances in the industry on measuring reserves," Dharan said.

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