NY Times: S.E.C. Shift Leads to Worries of Overestimation of Reserves

During the last weeks of the Bush/Cheney administration, the SEC changed the rule regarding how companies can estimate reserves and the cost of exploration. Among 19 of the largest shale companies reviewed by The New York Times, at least seven increased — some by more than 200 percent — the amount of undeveloped reserves they reported in their federal filings immediately after the rule took effect.

Previously, companies were allowed to count gas only from areas close to their active wells as part of their “proved” reserves, the amount of gas that a company estimates to investors it will tap. This was meant to prevent companies from claiming reserves of gas based largely on guesswork.

After the rule change, companies were allowed to include gas located farther from producing wells in their reserves estimates, using modeling methods to predict how much gas could be produced from these yet-untapped areas. But the S.E.C. said that the companies, for reasons of trade secrecy, did not have to disclose precise details about the technology they used to estimate reserve sizes. Though the commission considered requiring third-party audits to verify the reserve estimates, the idea was dropped in the end.


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