Oil and Gas Reporting Modernization
A Small Entity Compliance Guide*
The Securities and Exchange Commission has adopted revisions to its oil and gas reporting disclosures which previously were dispersed in Regulation S-K and Regulation S-X, as well as Industry Guide 2. The amendments revise Rule 4-10 of Regulation S-X. They also update the Commission’s disclosure requirements for oil and gas producing companies and consolidate them in a new Subpart 1200 to Regulation S-K. The amendments concurrently align the full cost accounting rules with the revised disclosures.
Oil and gas producing companies will be required to present disclosures pursuant to the new rules in registration statements and annual reports on Forms 10-K and 20-F containing financial statements for fiscal years ending on or after December 31, 2009.
The primary purpose for the amendments is to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves, which should help investors evaluate the relative value of oil and gas companies. The amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology.
No Early Compliance
Companies must continue to report information regarding their oil and gas operations, including oil and gas reserves, under the old rules until the new rules go into effect in order to maintain comparability among company disclosures.
Overview of New Rules
1. Changes to Oil and Gas Definitions in Rule 4-10 of Regulation S-X
The new rules and amendments revise the current oil and gas definitions in Rule 4-10 of Regulation S-X in the following manner:
2. Consolidation of Disclosure Requirement in Subpart 1200
The rules also create a new Subpart 1200 in Regulation S-K. This new subpart consolidates the industry-specific disclosure requirements for oil and gas companies currently found in Item 102 of Regulation S-K and Industry Guide 2. The new subpart contains the following disclosure items:
3. Other Significant Issues
a. MD&A Guidance
The adopting release also includes interpretative guidance regarding the types of issues an oil and gas company should consider when preparing its MD&A, including disclosure regarding material changes due to technology, prices and concession conditions.
b. Ceiling Test Limitation for Capitalized Costs under Full Cost Method
The amendments change the Commission’s full cost method of accounting to use a 12-month average price for reserves quantity disclosures and for accounting purposes.
c. Accounting Treatment and No Retroactive Revision
The adopting release includes accounting guidance stating that any change to accounting figures that result from the amendments should be treated as a change in the method of applying an accounting principle that is inseparable from a change in accounting estimate, which would not require retroactive revision.
The adopting release for the amendments can be found on the SEC’s Web site at http://www.sec.gov/rules/final/2008/33-8995.pdf.
Regulations S-X and S-K can be accessed through the “Corporation Finance” section of the SEC’s Web site at http://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
The SEC’s forms described above can be accessed on the SEC’s Web site at http://www.sec.gov/about/forms/secforms.htm.
Compliance and disclosure interpretations related to the amendments can be found on the SEC’s website at http://www.sec.gov/divisions/corpfin/guidance/oilandgas-interp.htm.
Contacting the SEC
The SEC’s Division of Corporation Finance and Office of the Chief Accountant are available to assist small companies and others with questions regarding the new interactive data submission and posting requirements. You can contact the Division and Offices for this purpose as follows:
Division of Corporation Finance — 202-551-3500 or https://tts.sec.gov/cgi-bin/corp_fin_interpretive
Office of the Chief Accountant — 202-551-5300 or OCA@sec.gov
* This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for a rule itself. Only a rule itself can provide complete and definitive information regarding its requirements.