Energy sector seeks reserves revamp

One of the biggest problems with the system, crafted by the Securities and Exchange Commission in 1978, may be that it is grossly underestimating reserves, indicated the report, funded by several major oil and gas exploration companies.

The SEC’s system “is out of synch with the way markets operate today,” said David Hobbs, a director at CERA and co-author of the report.

Reserves are estimates of supplies in the ground that companies believe they can commercially produce with reasonable certainty. These reserves are used by shareholders to assess a company’s value and future cash flows.

The report’s claim stands in contrast to announcements by some companies last year that they had overestimated reserves reported to the SEC. A year ago, Royal Dutch/Shell (RD: news, chart, profile) launched an internal audit that ended up slashing its proven reserves estimates for 2002 and 2003 and cost several of the company’s top executives their jobs.