Disclosure in financial markets is an issue engulfing investors and policy makers after recent corporate collapses.
Disclosure in financial markets is an issue engulfing investors and policy makers after recent corporate collapses.
While facing the same financial reporting regulations as other listed companies, public oil and gas explorers and producers in Australia currently are not required to report to any set standard regarding their petroleum reserves.
With this in mind, the Australian arm of professional services firm KPMG, which was involved in a six-month study by the US-based Cambridge Energy Research Association, believed the current lack of a reserve disclosure system was a hindrance to well-functioning industry investment.
The CERA study focused on the reporting of probable, proven reserves and sought to answer questions regarding how reliable disclosed reserves figures were and whether the current US system of disclosure met the needs of investors.
KPMG’s Perth oil and gas centre of excellence leader, Brent Steedman, believed the issue was significant for Australian-listed petroleum companies, as investors demand greater transparency in the market.
“I think it’s important for investors, and certainly it is an issue from the point of view of Australian-listed [petroleum] companies,” he said.
As globalisation of the industry and capital markets creates closer scrutiny surrounding listed-companies, industry representatives say the pressure is on to create a standard that addresses the concerns of both investors and regulators to prevent costly downgrades.
The Australian Stock Exchange is similarly concerned over the disparity, with its Perth office leading a taskforce to improve the way oil and gas is reported. The issue is being addressed after amendments the exchange made last year to listing rules for mining companies to adhere to the updated Australasian Joint Ore Reserve Committee (JORC) Code of reporting reserves.
The ASX’s Western Australian state manager Brendan O’Hara addressed the Australian Petroleum Production and Exploration Association (APPEA) conference on the matter this week. It is understood the outcome of the oil and gas taskforce will be to standardise the way reporting takes place in terms of probable and proven estimates.
The US Securities and Exchange Commission, which oversees regulation of reserve reporting in the US, has developed a framework where public companies are required to report their reserves.
The SEC’s definition of proved reserves states that reservoirs are considered proved if “economic producibility is supported by either actual production or conclusive formation test”. However Mr Steedman said that while this kind of definition in Australia would be a start, the standards of disclosure in Australia should not stop at proved reserves.
“We would like to see companies improve standards of reporting in relation to exploration spending too,” he said.
Locally-based junior oil and gas producer Antares Energy chief executive Howard McLaughlin said there needed to be some tightening of reserve reporting.
“There’s a lot of poor reporting that goes on at the moment. People tend to ramp up the stock and this is certainly a problem,” he said.
“The word ‘reserve’ tends to be abused quite a bit in company reports. There needs to be a clear distinction between probable and proven reserves.”
APPEA WA director Don Sanders agreed that a clear structure for companies to report reserves was needed.
“Clarification of what the requirements are is vitally important … that to me would be the most significant outcome,” Mr Sanders said.
One company to have downgraded oil and gas reserves is international giant Shell, which last year unexpectedly decreased its global petroleum reserves by 20 per cent to 16 billion barrels, with half of that decrease coming from the Gorgon project in the State’s north-west and others in Nigeria.
In another recent development on disclosure in the industry, Woodside Energy has formally joined the international Extractive Industries Transparency Initiative. The initiative is aimed at increasing transparency in transactions between governments and companies in extractive resources industries.
