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Modernization of the SEC Oil and Gas Reserves Reporting Requirements

Disclaimer. Opinions expressed in this presentation are mine alone; they represent neither the opinions of the Securities and Exchange Commission nor of its staff members.. SEC Modernizes Reporting Requirements for Oil and Gas Reserves . Requirements adopted December 29, 2008New rules follow public comments Concept Release December 2007 Proposing Release June 2008Complete text online.

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Modernization of the SEC Oil and Gas Reserves Reporting Requirements

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    1. Modernization of the SEC Oil and Gas Reserves Reporting Requirements John Lee Presented to SPE Gulf Coast Section 14 May 2009

    3. SEC Modernizes Reporting Requirements for Oil and Gas Reserves Requirements adopted December 29, 2008 New rules follow public comments Concept Release December 2007 Proposing Release June 2008 Complete text online

    4. Changes in Technology, Markets, Resources Motivate Updates Current reporting requirements in place since 1978-1982 Substantial technology advances in 25 years Growth and improvements in spot markets, product transportation to market Economical production of new resources, such as bitumen

    5. Ideas Came from Many Sources Filers suggested changes to staff Staff identified need for enhanced disclosure in investors’ interest

    6. SEC Incorporated Ideas from Suggestions December 2007 concept release solicited suggestions for modernization Reinforced and advanced previous ideas Added new possibilities Proposing release issued in June 2008 Clearer, more appropriate definitions and disclosure requirements Final rules adopted December 2008

    7. Major Change: 12-Month Averaging Replace single-day (year-end) price with 12-month average [S-X 210.4-10(a)(23)(v)] Reduces effects of short-term volatility Reduces effect of seasonality in prices Uses first-day-of- month prices to determine average

    8. Major Change: ‘Certainty’ Criterion ‘Certainty’ for proved undeveloped reserves modified to ‘reasonable certainty’ [4-10(a)(31)] Affects undrilled acreage beyond immediate vicinity of existing wells New flexibility increases uncertainty

    9. Definitions Modified: Reserves Reserves [4-10(a)(26)] Estimated remaining quantities of oil and gas expected to be recovered from known accumulations Categorized according to degree of uncertainty

    10. Definitions Modified: Reserves Categories Proved reserves [4-10(a)(22)] ‘Reasonable certainty’ clarified Much more likely than not; 90% probability Probable reserves [4-10(a)(18)] As likely as not; 50% probability Possible reserves [4-10(a)(17)] Possible, but not likely; 10% probability

    11. Definitions Modified: Resources Resources [4-10(a)(28)] Quantities of oil and gas estimated to exist in natural accumulations Portion recoverable (reserves), another portion unrecoverable Some discovered to date, some undiscovered

    12. Major Change: Nontraditional Resources Nontraditional resources to be included in oil and gas reserves [4-10(a)(16)] Oil (tar) sands Oil shales from mining operations Synthetic oil, gas from mined coal

    13. New Disclosures: Nontraditional Resources Bitumen (‘tar’ in tar sands) in natural state Oil and gas in natural state from shale formations Synthetic oil and gas from bitumen, shales, coal, other non-renewable natural resources Gas from coalbeds (formalizing guidance) Possible others, including gas hydrates

    14. Major Change: Use of new Technologies Permit use of new technologies to estimate proved reserves [4-10(a)(25)] No longer prescribe specific technologies Allows emerging technologies proven in practice to lead to correct conclusions

    15. New Disclosure: New Technologies Old rules specified technologies (e.g., flow tests to surface) to establish reserves New rules allow technologies ‘demonstrated to be reliable’ Includes proprietary technologies Concise summary disclosures required where technologies provide basis for additional reported reserves

    16. Comparison of Disclosures: Geographic Area Countries Groups of countries Continent Groups of countries within continent Country with >15% BOE proved reserves

    17. Comparison of Disclosures: Product Types Oil Gas Oil and natural gas Nontraditional resources bitumen oil and gas shales coal gas hydrates Nonrenewable natural resources intended to be upgraded to synthetic oil and gas

    18. Comparison of Disclosures: Proved Reserves Oil and gas In aggregate and by geographical area Total proved and proved developed By product type oil and natural gas synthetic oil and gas saleable nontraditional nonrenewable resource intended to be upgraded to synthetic oil or natural gas By geographic area Developed and undeveloped

    19. Comparison of Disclosures: Probable Reserves Not allowed Optional By product type By geographic area Developed and undeveloped

    20. Comparison of Disclosures: Possible Reserves Not allowed Optional By product type By geographic area Developed and undeveloped

    21. Comparison of Disclosures: Non-Reserve Resources Not allowed Not allowed

    22. How Can We Clear Up Uncertainties in Disclosure Requirements? Current recommendation of SEC staff Send emails or letters with questions to Roger Schwall at SEC (schwallr@sec.gov)

    23. Summary: Major Changes in Rules Definition of current price changed Nontraditional resources considered oil and gas activities Modern technology allowed to establish certainty levels ‘Certainty’ criterion replaced by ‘reasonable certainty’ for PUDs Optional disclosure of probable, possible reserves allowed

    24. Modernization of the SEC Oil and Gas Reserves Reporting Requirements John Lee Presented to SPE Gulf Coast Section 14 May 2009

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