Energy companies facing scrutiny over undrilled reserves and resources estimates

For the past two years oil companies have been experiencing pressure on their revenues and profits due to the precipitous decline in the price of oil from over $100 a barrel to less than $50—including one particularly grim period during which oil fell below $27 a barrel. The industry-wide decline has not gone unnoticed by the SEC and investors, who are considering whether certain optimistic disclosures made by oil companies during tough economic times were false or misleading. This article discusses two categories of disclosures currently undergoing scrutiny. First, the SEC is questioning whether oil and gas companies failed to properly write down proved undeveloped reserves (“PUDs”) in light of changed economic conditions. Second, the SEC and others are expressing interest in whether estimates made outside of SEC filings concerning non-SEC reserves, sometimes referred to as resource estimates, were false or misleading.

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