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DVN » Topics » Modernization of Oil and Gas Reporting

These excerpts taken from the DVN 10-K filed Feb 27, 2009.
Modernization of Oil and Gas Reporting
 
In December 2008, the SEC adopted revisions to its required oil and gas reporting disclosures. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. In the three decades that have passed since adoption of these disclosure items, there have been significant changes in the oil and gas industry. The amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. In addition, the amendments concurrently align the SEC’s full cost accounting rules with the revised disclosures. The revised disclosure requirements must be incorporated in registration statements filed on or after January 1, 2010, and annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosures in quarterly reports prior to the first annual report in which the revised disclosures are required.
 
The following amendments have the greatest likelihood of affecting our reserve disclosures, including the comparability of our reserves disclosures with those of our peer companies:
 
  •  Pricing mechanism for oil and gas reserves estimation — The SEC’s current rules require proved reserve estimates to be calculated using prices as of the end of the period and held constant over the life of the reserves. Price changes can be made only to the extent provided by contractual arrangements. The revised rules require reserve estimates to be calculated using a 12-month average price. The 12-month average price will also be used for purposes of calculating the full cost ceiling limitations. The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates and the full cost ceiling limitations due to short-term volatility and seasonality of prices.
 
  •  Reasonable certainty — The SEC’s current definition of proved oil and gas reserves incorporate certain specific concepts such as “lowest known hydrocarbons,” which limits the ability to claim proved reserves in the absence of information on fluid contacts in a well penetration, notwithstanding the existence of other engineering and geoscientific evidence. The revised rules amend the definition to permit the use of new reliable technologies to establish the reasonable certainty of proved reserves. This revision also includes provisions for establishing levels of lowest known hydrocarbons and highest known oil through reliable technology other than well penetrations.
 
The revised rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic producibility can be established with reasonable certainty. These revisions are designed to permit the use of alternative technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells.


64

Table of Contents

Because the revised rules generally expand the definition of proved reserves, we expect our proved reserve estimates will increase upon adoption of the revised rules. However, we are not able to estimate the magnitude of the potential increase at this time.
 
  •  Unproved reserves — The SEC’s current rules prohibit disclosure of reserve estimates other than proved in documents filed with the SEC. The revised rules permit disclosure of probable and possible reserves and provide definitions of probable reserves and possible reserves. Disclosure of probable and possible reserves is optional. However, such disclosures must meet specific requirements. Disclosures of probable or possible reserves must provide the same level of geographic detail as proved reserves and must state whether the reserves are developed or undeveloped. Probable and possible reserve disclosures must also provide the relative uncertainty associated with these classifications of reserves estimations. We have not yet determined whether we will disclose our probable and possible reserves in documents filed with the SEC.
 
Modernization of Oil and Gas Reporting
 
In December 2008, the SEC adopted revisions to its required oil and gas reporting disclosures. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. In the three decades that have passed since adoption of these disclosure items, there have been significant changes in the oil and gas industry. The amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. In addition, the amendments concurrently align the SEC’s full cost accounting rules with the revised disclosures. The revised disclosure requirements must be incorporated in registration statements filed on or after January 1, 2010, and annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosures in quarterly reports prior to the first annual report in which the revised disclosures are required.
 
The following amendments have the greatest likelihood of affecting our reserve disclosures, including the comparability of our reserves disclosures with those of our peer companies:
 
  •  Pricing mechanism for oil and gas reserves estimation — The SEC’s current rules require proved reserve estimates to be calculated using prices as of the end of the period and held constant over the life of the reserves. Price changes can be made only to the extent provided by contractual arrangements. The revised rules require reserve estimates to be calculated using a 12-month average price. The 12-month average price will also be used for purposes of calculating the full cost ceiling limitations. The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates and the full cost ceiling limitations due to short-term volatility and seasonality of prices.
 
  •  Reasonable certainty — The SEC’s current definition of proved oil and gas reserves incorporate certain specific concepts such as “lowest known hydrocarbons,” which limits the ability to claim proved reserves in the absence of information on fluid contacts in a well penetration, notwithstanding the existence of other engineering and geoscientific evidence. The revised rules amend the definition to permit the use of new reliable technologies to establish the reasonable certainty of proved reserves. This revision also includes provisions for establishing levels of lowest known hydrocarbons and highest known oil through reliable technology other than well penetrations.
 
The revised rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic producibility can be established with reasonable certainty. These revisions are designed to permit the use of alternative technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells.


64

Table of Contents

Because the revised rules generally expand the definition of proved reserves, we expect our proved reserve estimates will increase upon adoption of the revised rules. However, we are not able to estimate the magnitude of the potential increase at this time.
 
  •  Unproved reserves — The SEC’s current rules prohibit disclosure of reserve estimates other than proved in documents filed with the SEC. The revised rules permit disclosure of probable and possible reserves and provide definitions of probable reserves and possible reserves. Disclosure of probable and possible reserves is optional. However, such disclosures must meet specific requirements. Disclosures of probable or possible reserves must provide the same level of geographic detail as proved reserves and must state whether the reserves are developed or undeveloped. Probable and possible reserve disclosures must also provide the relative uncertainty associated with these classifications of reserves estimations. We have not yet determined whether we will disclose our probable and possible reserves in documents filed with the SEC.
 
Modernization
of Oil and Gas Reporting


 





In December 2008, the SEC adopted revisions to its required oil
and gas reporting disclosures. The revisions are intended to
provide investors with a more meaningful and comprehensive
understanding of oil and gas reserves. In the three decades that
have passed since adoption of these disclosure items, there have
been significant changes in the oil and gas industry. The
amendments are designed to modernize and update the oil and gas
disclosure requirements to align them with current practices and
changes in technology. In addition, the amendments concurrently
align the SEC’s full cost accounting rules with the revised
disclosures. The revised disclosure requirements must be
incorporated in registration statements filed on or after
January 1, 2010, and annual reports on
Form 10-K
for fiscal years ending on or after December 31, 2009. A
company may not apply the new rules to disclosures in quarterly
reports prior to the first annual report in which the revised
disclosures are required.


 





The following amendments have the greatest likelihood of
affecting our reserve disclosures, including the comparability
of our reserves disclosures with those of our peer companies:


 






























  • 
Pricing mechanism for oil and gas reserves estimation
— The SEC’s current rules require proved
reserve estimates to be calculated using prices as of the end of
the period and held constant over the life of the reserves.
Price changes can be made only to the extent provided by
contractual arrangements. The revised rules require reserve
estimates to be calculated using a
12-month
average price. The
12-month
average price will also be used for purposes of calculating the
full cost ceiling limitations. The use of a
12-month
average price rather than a
single-day
price is expected to reduce the impact on reserve estimates and
the full cost ceiling limitations due to short-term volatility
and seasonality of prices.
 
  • 
Reasonable certainty — The SEC’s current
definition of proved oil and gas reserves incorporate certain
specific concepts such as “lowest known hydrocarbons,”
which limits the ability to claim proved reserves in the absence
of information on fluid contacts in a well penetration,
notwithstanding the existence of other engineering and
geoscientific evidence. The revised rules amend the definition
to permit the use of new reliable technologies to establish the
reasonable certainty of proved reserves. This revision also
includes provisions for establishing levels of lowest known
hydrocarbons and highest known oil through reliable technology
other than well penetrations.


 



The revised rules also amend the definition of proved oil and
gas reserves to include reserves located beyond development
spacing areas that are immediately adjacent to developed spacing
areas if economic producibility can be established with
reasonable certainty. These revisions are designed to permit the
use of alternative technologies to establish proved reserves in
lieu of requiring companies to use specific tests. In addition,
they establish a uniform standard of reasonable certainty that
applies to all proved reserves, regardless of location or
distance from producing wells.





64




Table of Contents






Because the revised rules generally expand the definition of
proved reserves, we expect our proved reserve estimates will
increase upon adoption of the revised rules. However, we are not
able to estimate the magnitude of the potential increase at this
time.


 


















  • 
Unproved reserves — The SEC’s current
rules prohibit disclosure of reserve estimates other than proved
in documents filed with the SEC. The revised rules permit
disclosure of probable and possible reserves and provide
definitions of probable reserves and possible reserves.
Disclosure of probable and possible reserves is optional.
However, such disclosures must meet specific requirements.
Disclosures of probable or possible reserves must provide the
same level of geographic detail as proved reserves and must
state whether the reserves are developed or undeveloped.
Probable and possible reserve disclosures must also provide the
relative uncertainty associated with these classifications of
reserves estimations. We have not yet determined whether we will
disclose our probable and possible reserves in documents filed
with the SEC.


 






Modernization
of Oil and Gas Reporting


 





In December 2008, the SEC adopted revisions to its required oil
and gas reporting disclosures. The revisions are intended to
provide investors with a more meaningful and comprehensive
understanding of oil and gas reserves. In the three decades that
have passed since adoption of these disclosure items, there have
been significant changes in the oil and gas industry. The
amendments are designed to modernize and update the oil and gas
disclosure requirements to align them with current practices and
changes in technology. In addition, the amendments concurrently
align the SEC’s full cost accounting rules with the revised
disclosures. The revised disclosure requirements must be
incorporated in registration statements filed on or after
January 1, 2010, and annual reports on
Form 10-K
for fiscal years ending on or after December 31, 2009. A
company may not apply the new rules to disclosures in quarterly
reports prior to the first annual report in which the revised
disclosures are required.


 





The following amendments have the greatest likelihood of
affecting our reserve disclosures, including the comparability
of our reserves disclosures with those of our peer companies:


 






























  • 
Pricing mechanism for oil and gas reserves estimation
— The SEC’s current rules require proved
reserve estimates to be calculated using prices as of the end of
the period and held constant over the life of the reserves.
Price changes can be made only to the extent provided by
contractual arrangements. The revised rules require reserve
estimates to be calculated using a
12-month
average price. The
12-month
average price will also be used for purposes of calculating the
full cost ceiling limitations. The use of a
12-month
average price rather than a
single-day
price is expected to reduce the impact on reserve estimates and
the full cost ceiling limitations due to short-term volatility
and seasonality of prices.
 
  • 
Reasonable certainty — The SEC’s current
definition of proved oil and gas reserves incorporate certain
specific concepts such as “lowest known hydrocarbons,”
which limits the ability to claim proved reserves in the absence
of information on fluid contacts in a well penetration,
notwithstanding the existence of other engineering and
geoscientific evidence. The revised rules amend the definition
to permit the use of new reliable technologies to establish the
reasonable certainty of proved reserves. This revision also
includes provisions for establishing levels of lowest known
hydrocarbons and highest known oil through reliable technology
other than well penetrations.


 



The revised rules also amend the definition of proved oil and
gas reserves to include reserves located beyond development
spacing areas that are immediately adjacent to developed spacing
areas if economic producibility can be established with
reasonable certainty. These revisions are designed to permit the
use of alternative technologies to establish proved reserves in
lieu of requiring companies to use specific tests. In addition,
they establish a uniform standard of reasonable certainty that
applies to all proved reserves, regardless of location or
distance from producing wells.





64




Table of Contents






Because the revised rules generally expand the definition of
proved reserves, we expect our proved reserve estimates will
increase upon adoption of the revised rules. However, we are not
able to estimate the magnitude of the potential increase at this
time.


 


















  • 
Unproved reserves — The SEC’s current
rules prohibit disclosure of reserve estimates other than proved
in documents filed with the SEC. The revised rules permit
disclosure of probable and possible reserves and provide
definitions of probable reserves and possible reserves.
Disclosure of probable and possible reserves is optional.
However, such disclosures must meet specific requirements.
Disclosures of probable or possible reserves must provide the
same level of geographic detail as proved reserves and must
state whether the reserves are developed or undeveloped.
Probable and possible reserve disclosures must also provide the
relative uncertainty associated with these classifications of
reserves estimations. We have not yet determined whether we will
disclose our probable and possible reserves in documents filed
with the SEC.


 






EXCERPTS ON THIS PAGE:

10-K (4 sections)
Feb 27, 2009

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