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The SEC staff’s comments about oil and gas reserves focus on proved undeveloped (PUD) reserves and the use of third-party reserve reports. Specifically, the SEC staff frequently asks for additional information on:
  • the planned timing for the conversion of PUD reserves in regard to the Regulation S-X requirement that all PUD reserves be converted within five years. Once this information is provided, the SEC staff may then ask registrants to explain why they believe such reserves should continue to qualify as PUD when, based on the registrant’s information, development within five years appears unlikely; and
  • material changes to reserves, including disclosure of amounts attributable to each factor that resulted in changes and disclosure of the technologies used to establish the appropriate level of certainty for reserves estimates.
Comment examples
Guidance references
  • Tell us whether there are any proved undeveloped reserves as of year end that are not scheduled to be drilled within five years of initial booking. If so, tell us the specific circumstances that justify a longer time. See Rule 4-10(a)(31) of Regulation S-X.
  • We note your disclosure indicating that none of the proved undeveloped reserves as of December 31 are scheduled to be developed on a date more than five years from the date these reserves were initially disclosed. However, you also indicate that you converted approximately 0.4% of the proved undeveloped reserves. That rate of conversion suggests that you may not be able to develop your proved undeveloped reserves within five years of initial disclosure. Please provide us with your development schedule, indicating for each future annual period, the number of gross wells to be drilled, the associated net quantities of reserves, and estimated capital expenditures necessary to convert such reserves to developed reserves, to include all of the proved undeveloped reserves disclosed, and describe any change made or expected to be made in the schedule that would deviate from the definition set forth in Rule 4-10(a)(31)(ii) of Regulation S-X.
  • Expand the discussion of the changes in the net quantities of your proved undeveloped reserves to clearly identify the source of each change, e.g., revisions, improved recovery, extensions and discoveries, transfers to proved developed, sales and acquisitions, and to include an explanation relating to each of the items you identify. If two or more unrelated factors are combined to arrive at the overall change for an item, you should separately identify and quantify each material factor so that the change in net reserve quantities between periods is fully explained. The disclosure of revisions in previous estimates of your proved undeveloped reserves in particular should identify the changes associated with individual factors, such as changes caused by commodity prices, costs, royalty adjustments, well performance, unsuccessful and/or uneconomic proved undeveloped locations, or the removal of proved undeveloped locations due to changes in a previously adopted development plan. You may refer to Item 1203(b) of Regulation S-K if you require further clarification or guidance.
  • To the extent that you disclose material additions to your proved reserves, expand your disclosure to provide a general discussion of the technologies used to establish the appropriate level of certainty for your reserves estimates. Refer to Item 1202(a)(6) of Regulation S-K.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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