In words that would suggest the need for international accounting standards, Lord Browne of Madingley, the chief executive officer of BP Plc., criticized the Securities and Exchange Commission for applying its recently instituted guidelines on oil-reserve reporting only to the Gulf of Mexico, according to The Times of London.
The SEC had announced that that it would permit the use of certain modern technology in evaluating oil and gas field reserves, but restrict use of that technology to the Gulf of Mexico, according to the newspaper. “It is not logical to apply this to one geographic area of the world,” the CEO reportedly said. “If it is good for the deep water of the Gulf of Mexico, is it not good elsewhere?”
Lord Browne said he feels that oil companies could end up producing two sets of reserve numbers, one based on SEC guidelines and another in compliance with their national rules, such as Britain’s Statement of Recommended Practice, according to the newspaper. Energy companies’ methods of reporting “proven” reserves have become a major issue since the Royal Dutch/Shell Group announcement earlier this year that it had overstated its estimates of such reserves.
An April form letter to chief financial officers on the SEC’s Website suggested that the issue concerns the need of companies to conduct a production-flow test before booking proved undeveloped reserves in the deep-water Gulf, if they use other specific tools and technical information.
Roger Schwall — assistant director in the commission’s corporate finance unit and author of the letter — acknowledged that the SEC previously issued “no comment” letters to companies claiming proved undeveloped reserves in the deep-water Gulf prior to a production-flow test. The commission’s rationale was that company estimates were “fully supported by all the results from all the [other] procedures that the SEC identified.”
“Please understand that we take this position only with respect to the determination of proved undeveloped reserves in the deep-water Gulf of Mexico and no other location.” Schwall added in the April letter. “We recognize certain cost and environmental considerations that are particular to that geographic location and make the cost of traditional flow testing prohibitive.”