Deloitte Calls on Regulators to Update Rules for Oil and Gas Reserves Reporting.

HOUSTON -- Deloitte & Touche LLP ("Deloitte & Touche") is urging regulators around the world to update reporting requirements for oil and gas reserves to expand the scope of mandatory disclosures in annual reports and financial statements. The recommendations published today in

Current reserve disclosures and definitions are commonly based on U.S. Securities and Exchange Commission (SEC) rules introduced in 1978 focusing on 'proved' reserves. Petroleum engineers globally have since significantly updated the structure and definitions for categorizing reserves. The information widely used by the industry for making investment, planning and portfolio decisions generally relates to 'probable', as well as 'proved', reserves and is estimated using sophisticated data capture and analysis techniques developed over the last 25 years.

"Regulators should work together globally and adopt the definitions and categorization structures already endorsed by the petroleum experts and widely used within the industry today," said Victor A. Burk, Deloitte & Touche LLP, Chairman of Deloitte's Global Oil and Gas Group. "The continuing focus only on 'proved' reserves information is limiting and is prone to misinterpretation. Confidence has waned in this area following the restatements over the last year of reserves previously reported. Our suggestions are designed to promote disclosure of a fuller and more meaningful picture of oil and gas reserves information."

The following recommendations are identified in the report:

--Mandatory disclosures should be expanded by market regulators and accounting standard setters to include reporting on probable as well as proved reserves. Information on expected timing of production from both categories should be provided.

--Reserves information is essentially 'forward-looking' and should all be presented within the Operating and Financial Review (OFR), or in the United States, the Management Discussion & Analysis (MD&A), in both narrative and quantitative form, rather than as unaudited notes to the accounts.

--A requirement that reserves estimates disclosed in annual reports and accounts are to be prepared only by suitably 'certified' engineers, whether they be internal employees or external consultants, in accordance with standards and guidelines being finalized currently by the petroleum engineering profession.

--Corporate governance regulations on internal financial control processes, such as Turnbull in the UK and Sarbanes-Oxley 404 in the U.S., should apply to the compilation and reporting of reserves.

--In estimating reserves, managements should be permitted to interpret the 'current economic conditions' so as to apply reasonable price and cost assumptions that are consistent with their overall plans and budgets.

--Although independent audit of oil and gas reserves should remain optional, a framework of standards and guidelines governing independence, competence, audit procedures and prescribed forms of reporting needs to be far more fully developed.

"Reserves are fundamental to the financial statements of upstream companies and the current disclosure requirements do not adequately reflect this," Burk added. "Significant improvements are needed to the reserve disclosures available to markets as this information is so vital to users in assessing business performance and in calculating reported income."

The report co-authored by Peter Newman, Deloitte & Touche LLP (London, UK) and Victor Burk, Deloitte & Touche LLP (Houston, U.S.), respectively Managing Partner and Chairman of Deloitte's Global Oil and Gas group, is available at www.deloitte.com/us.

As used in this press release, the term "Deloitte" includes Deloitte & Touche USA LLP and its subsidiaries Deloitte & Touche LLP, Deloitte Consulting LLP and Deloitte Tax LLP.

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