Daniel Moser

SEC's New Plan Could Revamp Oil and Gas Reporting Rules

From my understanding there is another issue surrounding the accuracy of proven reserves. Apparently there are two different numbers reported to the agencies...reserves and resources. As it turns out proven reserves reflect the economically feasible reserves. This is a huge kink in the peak oil theory as well as any other medium term shortage argument.

As the price of oil/nat gas rises suddenly reserve numbers grow simply because projects that were not feasible a year or two before become feasible. That is a wretched way to measure the quantity of oil and natural gas on the Earth.

It seems to me Wall Street, the media, and policy makers should be more concerned with resources than reserves in the first place. I can understand from a raw cash flow valuation perspective why proven reserves may be important for short term valuations of securities (i.e. less than 5 years). However from a long term perspective natural resource companies are much more of a call option (real or financial) and proven reserves just wouldn't allow the correct valuation in my opinion.

Case in point, Canadian tar sand energy companies are quite literally a call option on future oil shortages. Yet because of limited technology currently, the amount of reserves available for them to harvest is grossly underestimated because it assumes no improvement in technology, which in itself is a very poor assumption.

P.S. On a website in which knowledge can be gained, nothing productive comes from being rude.