Thursday, January 1, 2009

New Rule Proposal for Natural Gas Producers

By Daniel Whitten

Dec. 30 (Bloomberg) -- A new U.S. Securities and Exchange Commission rule may make oil and natural-gas producers more attractive to investors by letting them declare reserves that have yet to be confirmed, according to the head of an Illinois- based energy research and consulting firm.

The new rule, approved by the commission yesterday and effective in January 2010, allows producers to include probable and possible reserves that reflect new technologies in their reporting, according to a statement from the commission. The value of the reserves will be based on average oil and gas prices over the previous 12 months, rather than at year’s end. The actual wording of the new rule wasn’t disclosed.

“This change by the SEC is, undoubtedly, a boost to oil majors,” said Gianna Bern, president of Flossmoor, Illinois- based Brookshire Advisory & Research Inc. “By including probable and possible reserves, the opportunity exists to re-evaluate and increase reserves.”

The new rule was adopted as producers such as Exxon Mobil Corp. and Chevron Corp. find it more difficult and costly to replenish crude-oil reserves with a decline in easily accessible deposits.

The rule still is subject to review before the SEC can publish it, said John Heine, a spokesman for the commission. Heine said he couldn’t provide further details before the rule is published in final form.

‘Wild Aberrations’

The oil industry in June supported a proposal to value oil reserves based on average pricing. Reserves reporting for 2008 will be based on year-end prices.

“That’s the one issue out there that industry has had the most agreement on, because there have been wild aberrations in some years between a one-day snapshot price and average pricing for the year,” said Mike Wysatta, business development manager for Houston-based Ryder Scott Petroleum Consultants, which evaluates oil and gas properties.

Oil producers would benefit from use of average pricing this year. Oil futures traded on the New York Mercantile Exchange, averaged about $100 a barrel so far this year, more than twice the current price of about $39.

Among the companies that the new pricing reports would help are Exco Resources Inc., Chesapeake Energy Corp., Pioneer Natural Resources Co. and Berry Petroleum Co., Pritchard Capital Partners said in a report today.

Bern said the expanded definition of reserves also benefits national oil companies such as Petroleos de Venezuela SA and Petroleo Brasiliero SA, which also report on an SEC basis.

Karen Matusic, a spokeswoman for the American Petroleum Institute, an industry group, declined to comment on the new rule, saying the group had yet to see the full text.

To contact the reporter on this story: Daniel Whitten in Washington at

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