Norsk Hydro Seeks SEC Clarification on Reserves Rules Amid Industry Turmoil

Strategic Insights -

Norsk Hydro, the Norwegian energy group, has requested clarification from the US Securities and Exchange Commission (SEC) regarding its reserves rules, particularly in relation to the Ormen Lange gas field. This move underscores the confusion among oil and gas companies about how to book proved reserves with the SEC. The controversy was heightened after Royal Dutch/Shell reduced its reserves by 20% in January, causing a massive scandal. The SEC's response to Norsk Hydro's inquiry could set a precedent for the industry, which is already reeling from Shell's scandal. The four corporate partners in Ormen Lange - Norsk Hydro, BP, ExxonMobil, and Statoil - have reported vastly different amounts of their share of the reserves to the SEC. The booking discrepancies raise questions about the industry's ability to accurately report its reserves and the need for updated guidelines.

Key Takeaways:

  • Norsk Hydro has asked the SEC to clarify its reserves rules regarding Ormen Lange, a highly contentious gas field in Europe.
  • The inquiry highlights the confusion among oil and gas companies about how to book proved reserves with the SEC.
  • The discrepancy in the booking of reserves among the four corporate partners in Ormen Lange (Norsk Hydro, BP, ExxonMobil, and Statoil) raises concerns about the industry's ability to accurately report its reserves.
  • Norsk Hydro has booked 75% of its share of the reserves, while BP has booked as much as 80%, ExxonMobil has booked - at most - 35%, and Statoil has booked 25%.
  • The SEC's rules, nearly 30 years old, still demand that companies use well tests to verify their proved reserves.
  • The industry is facing considerable uncertainty over booking rules, with analyst JJ Traynor of Deutshe Bank stating that Hydro has put the SEC under pressure to update its international reserves bookings guidelines.

Statistics:

  • 60%: The original proved reserves volume in Ormen Lange that Shell had initially reported.
  • 20%: The reduced proved reserves volume in Ormen Lange that Shell reported in January after slashing 20% of its reserves.
  • 75%: The percentage of its share of the reserves that Norsk Hydro has booked.
  • 80%: The percentage of its share of the reserves that BP has booked, according to calculations by the Financial Times verified by people close to the companies.
  • 35%: The percentage of its share of the reserves that ExxonMobil has booked.
  • 25%: The percentage of its share of the reserves that Statoil has booked.

Sources:

  • The Financial Times
  • Deutshe Bank
  • Securities and Exchange Commission (SEC)
  • Norsk Hydro
  • Royal Dutch/Shell
  • ExxonMobil
  • Statoil
  • DeGolyer & MacNaughton
  • Ryder Scott