Stand Tall and Speak Up (November 2005)
Authors: Sprunt Eve S. 
Published: February 2015

With all the coverage in the news media of high oil prices and concerns about oil production peaking, much of the public thinks that the end of the oil era is rapidly approaching. This misconception is fed in part by the U.S. Securities and Exchange Commission’s (SEC) reserves reporting requirements and confusion about what those reported numbers mean.

Reserves and changes in reserves shape the public’s perception of our industry. The magnitude of remaining reserves drives predictions of future energy supply, both within national borders and globally, and among other things affects recruiting, investment in a wide range of energy alternatives, and government policies. Large adjustments in reserves numbers reduce investor and policy makers’ confidence in reported numbers and faith in our industry’s ability to continue to satisfy rising demand. SPE can play a major role in increasing public confidence in reported reserves and future supplies.

The reserves booking requirements specified by the SEC are a de facto international standard. Since SEC reporting only includes proven reserves with a very high probability of being produced under current technical and commercial conditions, vast quantities of hydrocarbon resources are not recognized by the SEC system. Exclusion of hydrocarbon resources leads to public confusion about the volume of remaining hydrocarbons.

SPE, the World Petroleum Congress* (WPC), and the American Assn. of Petroleum Geologists (AAPG) have a jointly agreed upon a set of reserves and resources definitions, which includes contingent and prospective resources. New technology and commercial conditions, as well as the effects of production performance and ongoing exploration, shift hydro-carbons from one category to another within the SPE/WPC/AAPG system. The relationship between the SPE/WPC/AAPG definitions and reserves reported to the SEC is shown in Fig. 1. Note that in Fig. 1, SEC proved reserves are not necessarily the same as SPE/WPC/AAPG proved reserves because SPE allows potential use of a broader range of technologies to verify proved reserves and allows use of average prices rather than the price on the last day of the year for year-end reporting purposes. The SPE/WPC/AAPG system presents a more complete picture of the future.

The SPE website explains reserves and resources reporting in the “About Oil and Gas” section (http://www.spe.org/spe/jsp/basic/0,,1104_1730,00.html). In addition to the definitions and explanation of the classification system, the website provides historical information, a glossary of terms, and auditing standards. I find it a very useful reference site.

Many companies use the SPE/WPC/AAPG system to internally track their hydrocarbon assets, while complying with SEC guidelines in their official reporting. The SEC only allows the public reporting of proved volumes, so unproved reserves and contingent and prospective resources are not disclosed.

Universal adoption of a single set of reserves and resources definitions, which are current best practices, by the oil and gas industry as well as by international financial organizations and regulatory and reporting bodies would be highly beneficial to industry image and would increase public confidence in our industry’s ability to satisfy society’s demand for hydrocarbons. SPE is working with regulatory and reporting groups worldwide to help realize this objective.