Capital Markets and the Oil & Gas Global Industry: SEC Reserve Reporting and International Petroleum Arrangements

Although a combination of technology and the relatively green footprint of natural gas has led it to become an increasingly important part of the energy mix on every continent, the economics of natural gas remain challenging, foremost due to transportation costs. Even with the rapid development of the LNG industry globally, it cannot be said that there is a real spot market for natural gas, and pipeline gas continues to function in most jurisdictions as a natural monopoly. Thus, gas is more likely to be caught in the trap of “economic conditions”, “economic produability” and “government regulation.”

A positive aspect of the changes to the SEC Rules regarding gas is the extra reach in the definition of proved reserves, meaning that now a producer can claim extra reserves outside of its immediately adjacent developed spacing areas, if the producer can show “with reasonable certainty” that the reserves are “economically producible.”

Another positive development for gas is the SEC's acceptance of the use of an “analogous reservoir” as evidence. The term “analogous reservoir” means a hydrocarbon reservoir that is proven to be productive, that shares the same salient traits as the reservoir being considered for bookable reserves, so to be analogous, the other reservoir must have the same geological formation and environment of deposition, and similar geological stru