Two recent papers (URTeC 3003052 and SPE 200626) have presented detailed investigations of reasons why proved reserves estimates based on PRMS principles and on SEC regulations differ by substantial amounts in several instances. This paper synthesizes and extends this previous work and addresses implications of differences and reasons for differences.

We examined the relatively limited number of cases in which reserves filers have reported reserves as of a given date based on both PRMS definitions and SEC regulations. To understand the differences, we also reviewed numerous annual reports and comment letter exchanges between reserves filers and the SEC staff during the period 2009 to 2019. We devoted attention to identify differences that might arise from different interpretations of reserves definitions adopted by the two different systems. Since COGEH is quite like PRMS regarding the use of forecast prices and costs, we extended our analysis to include comparisons with COGEH proved reserves when addressing prices and costs as root causes for the differences.

While we examined many potential reasons why proved reserves using SEC and PRMS definitions and principles are different, we found three that appeared to be dominant. The first is that the SEC requires use of current prices in reserves estimates whereas PRMS (and COGEH) allow use of forecasted prices (often escalated) for sales volumes. The second is that PRMS requires firm evidence that a recovery project for resources has been fully approved and funded to reach classification as reserves with the status of "Approved for Development," but also allows recovery projects which are reasonably expected to receive approval to be classified as reserves with the status of "Justified for Development." Examination of comment letter exchanges indicates that the SEC also requires "reasonable certainty" that a "Final Investment Decision" will be reached to classify resources as reserves, essentially the same as the PRMS requirement for "Justified for Development" status. Comment letter exchanges indicate that this is the SEC staff's customary practice even though a literal reading of SEC guidance might suggest a stricter standard. The implication is that some reserves filers may unknowingly limit their reserves bookings, which might not be in the filers' or other stakeholders' best interests. The third reason is the five-year SEC development limitation (unless specific circumstances justify a longer time).

Interpretation of reserves disclosure requirements in principles-based regulations based on how they are enforced in practice may serve investors and owners of resources better than assumptions based on literal readings of these regulations.

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