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The SEC staff’s comments around 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.

The SEC staff has also commented on compliance with mining reserve disclosures pursuant to Regulation S-K, such as requesting expanded disclosures concerning exploration plans and further information on categorization as proven or probable reserves. In addition, the staff has requested supplemental information that establishes the legal, technical, and economic feasibility of materials designated as reserves.
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. Please similarly revise your disclosures of changes in the net quantities of total proved reserves in your footnote disclosure, to address for each period the changes depicted in each line item in the reconciliation, other than production, to comply with FASB ASC 932-235-50-5.
  • 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.
  • Please forward to our engineer as supplemental information and not as part of your filing, the information that establishes the legal, technical, and economic feasibility of the materials designated as reserves, as required by paragraph (c) of Industry Guide 7. The information requested includes, but is not limited to: Property and geologic maps. Description of your sampling and assaying procedures. Drill-hole maps showing drill intercepts. Representative geologic cross-sections and drill logs. Description and examples of your cut-off calculation procedures. Cutoff grades used for each category of your reserves. Justifications for the drill hole spacing used to classify and segregate proven and probable reserves. A detailed description of your procedures for estimating reserves. Copies of any pertinent engineering or geological reports, and executive summaries of feasibility studies or mine plans including the cash flow analyses. Copies of any pertinent marketing studies. A detailed permitting and government approval schedule for the project, particularly identifying the primary environmental or construction approval(s) and your current location on that schedule.
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