Oil Firms Queried on Reserves

SEC Is Pressing Companies for More Disclosure - wsj.com

The Securities and Exchange Commission is pressing energy companies in the U.S. to disclose how much of their reserves—a key gauge of future profit—consists of oil rather than less valuable liquids like propane.

After prodding from regulators, companies including BHP Billiton Ltd. BHP.AU -1.04% and ConocoPhillips COP +0.60% have recently joined Exxon Mobil Corp. XOM +0.48% and Anadarko Petroleum Corp. APC -0.87% in agreeing to break out how much of the fuel they can pump at a profit is crude rather than liquids derived from natural gas.

The question is becoming more critical as crude prices hover over $100 a barrel while prices of other liquid fuels have tumbled in the face of surging supply. But some companies continue to lump the two together, and SEC officials are pushing them to change that when the noncrude liquids are significant.

"One of the things we often are not seeing is separate disclosure of natural-gas liquids," John Hodgin, a petroleum engineer with the commission, told a small industry gathering at the Hanson Wade Reserve Estimation conference in Houston, last month.

Anadarko disclosed that liquid gases made up a quarter of its reserves.

A Wall Street Journal review of regulatory findings found that the SEC has queried at least 14 companies about how much of their reserves are liquids versus oil since 2010, including seven in the last 12 months; eight ultimately agreed to provide more disclosure, including the country's biggest oil and gas producer, Exxon, in 2012.

The others said none was required and the SEC hasn't insisted.

Analysts say that combining reserves of oil with liquid gases can make it harder for investors to gauge how much money a company is likely to make by producing those fuels. U.S. crude, for instance, fetched $95.75 a barrel last year, according to Wells Fargo; a barrel of the fuels known as natural-gas liquids—propane, ethane and butane—sold for about $44.52 based on the bank's calculations, down 25% from the previous year.

"Breaking out NGLs from crude oil will become of more interest to investors," said Pavel Molchanov, an energy analyst at Raymond James, noting that they are becoming a bigger part of companies' reserves.

In 2010, Houston-based Anadarko reported roughly a billion barrels of oil and liquid gases as proved reserves—fuels it estimated it could produce at an acceptable profit. But after months of back-and-forth with regulators, the company disclosed that liquid gases made up more than a quarter of those barrels.

Still, the added disclosure didn't change Anadarko's estimates of the value and costs of producing its reserves.

The SEC's push draws on a 2008 rule that requires energy companies to report the different fuels they produce in material amounts. Separately, the Financial Accounting Standards Board calls on energy companies to report reserves of liquid gases separately when the amount is "significant."

It isn't clear where the SEC draws the line on when companies must report reserves of liquid gases separately.

But a review of the commission's correspondence with energy companies suggests that officials insist on more disclosure when liquid gases make up about 6% of a company's production or reserves.

Exxon in 2011 said that liquid gases made up 5.8% of its global reserves in response to SEC inquiries, an amount the commission considered significant. BHP Billiton, BLT.LN -1.98% an Australian mining conglomerate that produces oil and gas in the U.S., had reported that liquid gases were 6% of 2012 production when the SEC requested more disclosure in April of this year.

The commission in 2012 asked Chevron Corp. for more detail on its reserves of liquid gases but didn't press the issue when the company responded that they made up 3.6% of reserves in 2011.

Marathon Oil Corp. combines crude and liquid gases into reserves of "liquid hydrocarbons," even though its barrels of crude sold for more than twice as much as the same amount of NGLs in the U.S. last year, according to its financial statements. Of the company's global production in 2012, 5.3% came from liquid gases. In the first half of 2013, the company nearly tripled its liquid-gas output from a year earlier.

Lee Warren, a Marathon spokeswoman, said the company doesn't have a "material" amount of liquid-gas reserves and hasn't received instructions by the SEC to change its reporting.

"We're monitoring it closely with an eye toward following best practice as well as any specific actions the SEC may require in the future," she said.

Write to Daniel Gilbert at daniel.gilbert@wsj.com