Prices - Oil-Reserve Rules May Change

Regulators are on the verge of modernizing oil and natural gas reserve-accounting rules that could revalue much of the petroleum sector. The Securities and Exchange Commission yesterday finished posting public comments, which overwhelmingly support the agency's proposed rule revisions. The revisions were based on petroleum-industry recommendations.
If the SEC moves ahead with its proposals, it would be the first time in several decades the commission has updated its reserve-accounting rules. Modernized rules would create consistent valuation standards for unconventional resources such as tar sands and hard-to-produce natural gas.

This could allow some companies to officially book billions of barrels in tar sands or billions of cubic feet of natural-gas reserves -- declaring themselves to be more valuable in the process. The rules would take into account new technology and recovery methods.

Reserves accounting is a crucial investor metric to valuing petroleum businesses. As typical resources are becoming more difficult to find or develop because of limited geopolitical access, companies have been turning to unconventional oil and gas deposits. Oil prices at record levels also have made expensive, unconventional projects now viable.

Besides allowing companies to officially book billions of barrels of new oil sands and other unconventional resources, the new rules could help more accurately report the value of tar sands, or bitumen, by allowing companies to assess their assets at sale value. Current valuing of bitumen is based at year-end levels, when prices are typically at their lowest because of their link to asphalt demand.

Companies weren't allowed by the SEC to book many of those resources under the old rules, last updated in 1982. As a result, many companies were understating their reserves to the SEC and giving their own accounts directly to investors.