The Israel Securities Authority today presented its new reporting rules for oil and gas exploration companies. Securities Authority Corporation Finance Department director Adv. Shirel Guttman-Amira presented the new rules in a special briefing.
The Securities Authority wants to prevent the flood of incomprehensible announcements and to increase the transparency of the oil and gas exploration partnerships to their investors. The Securities Authority said that today's document was a preliminary draft, which was being submitted for public comments, after which the final draft will be written and submitted.
Guttman-Amira said, "We discussed whether to require the publication of data that was not yet precise and includes a degree of subjectivity, but the discussion was between some uncertainty in reports and trading based on rumors. Between the two choices, we preferred the mandatory obligation of reporting, even if there is still a degree of uncertainty."
Guttman-Amira added, "At the core of the guidelines is the Petroleum Resources Management System (PRMS), which is used by the global oil and gas industry, including in the US and Canada."
The Securities Authority made minor adjustments to the PRMS model, but the new rules fully rely on its precise definitions, and forbid notices to the TASE that do not use the model's definitions.
In addition to the requirement to use the PRMS model, the Securities Authority has ordered that the discovery of oil resources will be made at the project level, in contrast to the US and Canada, where it is permissible to announces reserves according to segments at the state level, or by type of petroleum.
The Securities Authority's guidelines divides oil resources or wells into two main categories: prospective resources (before the drilling of an exploratory well), and conditional resources or reserves (after the drilling of an exploratory well). All announcements after drilling of an exploratory well will now be required to use PRMS language, as defined by the Securities Authority. For stages preceding the drilling of an exploratory well, the Securities Authority recognizes that it is sometimes necessary to make a quantitative report about prospective resources "despite the subjective nature of this kind of information", as the Securities Authority put it.
In addition, oil and gas exploration partnerships will be required to include in their announcements a warning that the information therein is only an assessment. An announcement will also include an opinion on the reserves available to the partnership, and an opinion on the conditional or prospective resources, provided that it has a material effect on the type, quantity, or other critical aspects of the well.
The Securities Authority says that it recognizes that application of the PRMS model will not solve all the problems with regard to the industry. "It should be noted that evaluations based on the model include a degree of subjectivity," it says.
The PRMS model is based on a three-tiered statistical model: 1P, 2P, and 3P. 1P includes data on the number of barrels of oil with a 90% chance of production; 2P has a 50% chance of production; and 3P has a 10% chance of production. Givot Olam Oil Exploration LP (TASE:GIVO.L) used these classifications in its latest report on the Meged 5 well.
By requiring oil and gas exploration partnerships to use the PRMS model, the Securities Authority seeks to provide credible and comparable information about the statistical chances of success of each project.
To eliminate the lack of uniformity and clarity in announcements, the Securities Authority has also set up a disclosure and announcement oversight mechanism comprising several key elements. First, partnerships will be required to use certified professionals. Second, evaluations must be independent of the partnership, and the writing and presentation of the evaluation report will be based on accepted methodologies. Additional rules include the disclosure of quantitative and qualitative parameters used for calculating sizes variables and economic projections, and a declaration by management on compliance in the preparation of the resources evaluations.
The Securities Authority intends to apply the recommendations immediately after receiving comments from the public over the next few weeks. "The objective is to apply this immediately in prospectuses and in upcoming reports published by March 2011," said Guttman-Amira.
Published by Globes [online], Israel business news - www.globes-online.com - on December 6, 2010
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