Natural gas reserve numbers under attack

Apples and oranges and other deceptions.

Is it possible that what the International Energy Agency (IEA) calls the golden age of natural gas may by all hype or is it possible that special interest are trying to stop the natural gas revolution? Yesterday the New York Times created quite the stir when it reported that some natural gas companies may be taking advantage of new rules on reporting shale gas reserves and "questioned whether some companies are overstating, perhaps intentionally, the amount of gas they can economically produce in a given period. This practice, known as overbooking, is illegal because it misleads investors trying to assess a company's strength and banks that use reserves as collateral for loans."

The New York Times says that, "Previously, companies were allowed to count gas only from areas close to their active wells as part of their ‘proved’ reserves, the amount of gas that a company estimates to investors it will tap. This was meant to prevent companies from claiming reserves of gas based largely on guesswork. After the rule change, companies were allowed to include gas located farther from producing wells in their reserves estimates, using modeling methods to predict how much gas could be produced from these yet-untapped areas. But the S.E.C. said that the companies, for reasons of trade secrecy, did not have to disclose precise details about the technology they used to estimate reserve sizes. Though the commission considered requiring third-party audits to verify the reserve estimates, the idea was dropped in the end. The rule change was especially helpful to shale gas companies because it approved the use of new technology and modeling techniques that these companies rely on more heavily than traditional oil and gas companies."

The Times goes on, "Among 19 of the largest shale companies reviewed by The New York Times, at least seven increased — some by more than 200% — the amount of undeveloped reserves they reported in their federal filings immediately after the rule took effect, according to their S.E.C. filings. Investors cheered the rule change as it was adopted, and in the following months they sharply bid up the stocks of five of the seven companies. The rule change also allowed these companies to reduce one of the costs that investors often rely on to compare the performance of energy companies: Their finding and development costs. These costs now appeared drastically lower because they were being divided across a much larger reserve estimate. Five of the seven shale companies also reported huge decreases in their finding and development costs — by as much as 86%, according to a review by The Times of their federal filings. The average decrease in these costs for the oil and gas industry on the whole was about 48 percent for the year. "

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