?More timely portfolio management, resulting from following new SEC reserves-reporting guidelines at year-end 2009, may improve transaction values for E&P companies putting assets on the market.


This is among observations by reserves-evaluation and asset-marketing experts in a webinar, “More, Better: E&P Enterprise Valuation Under New Reserve-Reporting Rules,” recently hosted by OilandGasInvestor.com. Register for the archived webinar here.


“Petroleum engineers will typically use the time that is available to them,” says Mark Roach, senior vice president, technical resources, with The Oil & Gas Asset Clearinghouse, of the SEC’s new 12-month/year reserves-analysis rule. It allows monthly evaluation of reserves, compared with the old practice of year-end-only analysis. E&P companies’ reservoir-evaluation engineers may now be more familiar with the companies’ reserves—and their worth—on a monthly basis.


“You’ll see some transactions and portfolio management occur earlier than in the past.”


Scott Rees, chairman and chief executive officer of reservoir-evaluation firm Netherland, Sewell & Associates Inc., describes the SEC’s new view of a five-year rule on booking proved reserves.


“The SEC says five years is a reasonable plan of development. Anything past five years, there should be some circumstance that makes sense for (booking) that.”


For example, an operator may have a several-year history of drilling 20 wells per year in a play with predictable results, and all indications are that this program will continue beyond five years. The operator may have a good claim to book more of the reserves as proved than only what may be drilled in the next five years.


Geoff Roberts, senior vice president, negotiated transactions, for The Oil & Gas Asset Clearinghouse, says the regime opens the company-reporting process to serious potential for misuse or abuse by aggressive public companies.


The definition of proved, undeveloped (PUD) reserves is now less strict, he says. “Purchasers are going to have their hands full in sorting through these PUDs.” They will have to be clear as to the nature of the PUDs that are being reported. “What kind of PUDs are these?”


As for probable and possible reserves, these will gain credibility and value, he adds.


Ron Gajdica, managing director of M&A advisor Scotia Waterous, says the past definitions “really made no sense” in terms of each oil and gas company’s unique assets and development programs. Under new practices, U.S. companies’ value on the market will improve, and Canadian companies—that report reserves under U.S. rules—will benefit even more. The new rules give greater regard to oil-sands assets .


Rees notes that more reserves may be booked based on proprietary technology. The SEC isn’t asking companies to disclose their proprietary technologies, but companies will certainly need to give the investor some reasonable idea of how and why it works, he says.


The rules are not in effect for another year, yet they already are affecting E&P companies.

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