Managing Your Business Using Integrated PRMS and SEC Standards

Abstract

The SPE/WPC/AAPG/SPEE Petroleum Resources Management System (PRMS) published in March 2007 provides an international industry standard for classifying and reporting reserves and resources. Many companies have adopted PRMS directly, or in modified versions, as part of their internal asset management systems. However, publicly traded companies have historically been forced to maintain two sets of reserves and resources records: one for internal project and portfolio management, and one for regulatory disclosures. This may no longer be required for those issuers listed on U.S. stock exchanges. On December 29, 2008, the U.S. Securities and Exchange Commission (SEC) published revised rules for disclosure of oil and gas reserves that closely align with the evaluation principles and reserves guidelines contained in PRMS. The SEC mandates reporting of Proved Reserves while disclosure of Probable and Possible Reserves is now optional. These disclosures may be viewed as a subset of PRMS which also includes guidance on Contingent and Prospective Resources. While PRMS reserves are confined to projects that are economic based on internal price forecasts, the SEC requires use of 12-month historical average prices. However, the systems may be integrated with options to include supplemental assessments based on alternative pricing scenarios. Both PRMS and SEC accommodate deterministic and probabilistic estimates of "as sold" hydrocarbon products irrespective of the extraction method and interim processing required. This alignment allows the same resource evaluation to underpin both internal business processes (project tracking, portfolio management) and regulatory disclosures including reconciliations by category. It is now feasible to design a single database to support reporting requirements for both functions at multiple aggregation levels based on geographic area, product type, resource class, and resource category. Companies can now manage their business based on PRMS industry standards but accommodate SEC disclosures within a single integrated assessment system. In addition to allowing significant process efficiencies, a common system improves the linkage between technical and business analyses providing a clear audit trail.