Skip to comments.El Paso answers reserve inquiry Firm talks with SEC officials
Posted on 03/08/2004 7:24:33 PM PST by Paleo Conservative
Since El Paso Corp. said last month it was reducing its estimated proven natural gas and oil reserve base by 41 percent, it has received questions on the matter from federal securities regulators, an El Paso spokesman said Friday.
Company officials and the Securities and Exchange Commission have been talking on and off since the announcement, El Paso spokesman Bruce Connery said. He added that El Paso has responded to the questions.
Houston-based El Paso initially notified the SEC of the reserve reduction.
He declined to give details on the discussions. An SEC spokesman declined to comment.
If the SEC launches a formal investigation, El Paso said it would disclose it. During a formal investigation, the SEC has the power to issue subpoenas.
Proven reserves, a key number used in the industry for predicting the potential of oil and natural gas production, gained attention after Royal Dutch/Shell Group's January announcement it was reducing its proven reserve base by 20 percent.
Proven reserves typically represent what a company can reasonably expect to produce based on economic conditions and technology.
The SEC has already launched a formal investigation of Shell's revision. The company's two top executives were forced out earlier this week in the wake of its reserve reduction.
El Paso already has in place a new chief executive officer and a new executive over its exploration and production operations.
El Paso, which also owns gas pipelines, reduced its reserve base as of the end of last year from 4.46 trillion cubic feet of natural gas equivalent to 2.64 trillion cubic feet of gas equivalent.
As a result of its revision, El Paso will record a noncash charge against its 2003 fourth-quarter earnings of about $1 billion on a pretax basis.
The company has also hired an outside law firm to investigate the matter.
El Paso may provide further details this month on how much of the reserve revision has or will be reclassified as "probable" reserves.
Probable reserves represent gas and oil still likely to be recovered but that would take additional steps to do so.
In essence, proven reserves are the most certain to yield production, while probable reserves have less certainty.
A number of shareholder lawsuits have been filed against El Paso related to the reserve cut.
El Paso had no comment on the suits.
This reserves nonsense is related to whether one should use Hubbard's [sp?] methodology.
After the 1973 Oil Embargo, the Arab nations that had oil sharply revised upward their "reserves", and as an argument can be made to support their approach, many others did also.
I was first alerted to this in a promotional newsletter touting "The Tuscaloosa [sp?] Trend in the Southwest, as well as Hubbard's Peak...
Now, it seems that a consensus is emerging that the upward reserve revisions were wildly overstated...as we are finding in Iraq, where HUGE "reserves" can't be translated into OPEC breaking current production.
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