In a previous paper (Morales and Lee 2018), the authors described reasons why differences continue to exist between proved reserves disclosed by entities using SEC regulations and in documents in which they disclose proved reserves following PRMS standards. At that time, we deferred discussion of project maturity as one of the potential root causes for such differences. Different interpretations of the SEC guidance requiring a "final investment decision (FID)" have been identified as a potential root cause that may result in an unconscious under estimation of disclosed SEC proved undeveloped (PUD) reserves. This paper completes the discussion of the differences between PRMS and SEC proved reserves and focuses on the available evidence that explains what the SEC actually requires to support a claim that an "FID" has been reached, and its alignment with PRMS guidance.

We examined exchanges of comment letters between the SEC and 110 Oil and Gas companies that disclosed PUD reserves in filings from end 2009 to end 2018, where the keywords "Final Investment Decision," "FID," "Adopted Development Plan," or "Development Plan" were mentioned in the exchanges. The objective was to determine the criteria that filers used to satisfy the requirements for an "FID" and how the SEC treated these arguments. The SEC presented its requirement for an "FID" in its 26 October 2009 "Compliance and Disclosure Interpretations [C&DI]" guidance. The PRMS 2018 update, and the 2008 modernization of the SEC regulations (the latter based to a large extent on the PRMS), were also used in this analysis, with a focus on their reserves definitions and on the PRMS requirements for the PUD reserves sub-classes "Justified for Development" and "Approved for Development," and their link to SEC PUD reserves.

The analysis showed that companies replying with an explanation of their processes to disclose SEC PUD reserves typically described the requirements for an "FID" to be satisfied by the projects with PUD reserves being part of a five year business or "Development Plan", annually reviewed, challenged and updated by the company's relevant departments, including the reserves governance organization and reserves committees, and approved by relevant senior management and the Board of Directors, if applicable, resulting in what is usually called the "Adopted Development Plan." When the other SEC criteria for PUD reserves are also satisfied (e.g., "reasonable certainty" of the projects' PUD reserves converted to developed reserves within five years from first disclosure, etc.), this Adopted Development Plan becomes the basis for the disclosed PUD reserves in 20-Fs, 10-Ks or other documents (e.g., Forms S-1, S-4). We established that the SEC did not object to this approach; this means that the SEC takes a conscious and liberal, rather than a literal, view of the requirements for an "FID", consistent with its general approach to enforcing its regulations on a principles-, rather than prescriptive-, basis.

However, we also found that some companies still seem to require, as an internal control procedure, satisfaction of the literal definition of "FID" as a prerequisite for disclosure of resource volumes as SEC PUD reserves. The extent to which this criterion is applied has not been fully disclosed. We conclude that this approach is sufficient, but not necessary, to classify a project as having PUD reserves and comply with SEC regulations and that a literal interpretation of "FID" can also account for some of the differences in PUD reserves estimated using the PRMS and SEC systems.

This paper, coupled with its predecessor (Morales and Lee, 2018), provides to the industry a logical and needed explanation of why SEC and PRMS proved reserves sometimes differ despite the belief by many in the industry that, after the introduction of PRMS in 2007, its update in 2018, and the modernization of the SEC reserves regulations in 2008, the PRMS and SEC proved reserves would be essentially the same. The implications that these differences in interpretations may have in reflecting the company's true value and growth potential (from the undeveloped projects portfolio) are not addressed in this paper.

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