07 Mar 2019

Reporting changes on the way for ASX-listed oil and gas entities

By Brett Cohen, Liz Humphry and Sam Pullin

Listed oil and gas entities should consider updating their reporting systems to align with the revised Petroleum Resources Management System and prepare for formal consultation with ASX on Chapter 5 Listing Rule changes later this year.

Listed oil and gas companies must report and classify their petroleum resources in accordance with the Australian Securities and Exchange (ASX) Listing Rules and the Society of Petroleum Engineers – Petroleum Resources Management System.

In June 2018, the Society of Petroleum Engineers approved and released a revised version of the 2007 Petroleum Resources Management System (PRMS 2007).

The revised PRMS (PRMS 2018) maintains the foundation principles contained in the PRMS 2007, while providing additional guidance in areas aimed at improving the integrity of reported estimates of petroleum resources and making these estimates more easily understood by investors.

Currently, the PRMS 2007 underpins the reporting requirements relating to petroleum resources in ASX Listing Rule Chapter 5, which states that petroleum resources:

  • must be classified in accordance with the PRMS; and
  • reported in the most specific resource class in which the petroleum resources can be classified under the PRMS.

Although the updated PRMS (PRMS 2018) has not yet been adopted by ASX, ASX has stated that it is supportive of many of the changes and oil and gas entities can expect formal consultation on Listing Rule changes later this year in response to the PRMS 2018.

The key changes from the PRMS 2007 to the PRMS 2018, and their likely impact on ASX's reporting requirements for oil and gas entities, are outlined below.

Classification Framework (ASX LR 5.25.2)

To add clarity over the commercial status of a resource and enable investors to more easily determine whether a resource actually has a prospect of commerciality:

  • New classifications have been included for the incremental uncertainty categories of Reserves and Contingent Resources. These resources should also be sub-classified based on project maturity.
  • The Prospective Resources classification has been revised to include new abbreviations for the cumulative uncertainty categories in place of "Low", "Best" and "High".
  • The PRMS 2018 also provides additional explanation of the resource classes to make them easily identifiable to investors.

Entitlement Volumes (ASX LR 5.25.5)

The reporting of entitlement volumes under production sharing contracts and other contracts has been clarified to eliminate confusion as to which net recoverable resources should be evaluated and reported.

Commercial producibility of a project (ASX LR 5.26.1)

In order for an economic project to be considered commercially viable and for Reserves to be assigned, the PRMS 2018 has introduced seven new criteria for commerciality. The additional conditions imposed by the PRMS 2018 will require oil and gas entities to provide additional evidence showing the viability of the project.

Fuel Volumes as Reserves (ASX LR 5.26.4)

Produced petroleum volumes used for fuel may be included as Reserves for any project, but must be reported separately. However, this information must not be included in project economics as they do not have an associated cost or revenue.

Determination of Discovery (ASX LR 5.33.2)

The requirements for a discovered petroleum accumulation have been amended. When an oil and gas entity publicly reports estimates of contingent resources in relation to a material oil and gas project for the first time, it must include "evidence of producibility" and in addition to testing, sampling and/or logging, suitable producing analogues may now be used. These updates will make it easier to disclose discoveries of untested conventional petroleum.

Split Conditions and Classification

The PRMS 2018 states that a project can no longer have quantities classified in both Reserves and Contingent Resources. Oil and Gas entities will no longer be able to apply different commercial conditions when categorising resources, in effect mixing chance of commerciality (classification) with uncertainty (categorisation) which previously allowed Probably and Possible Reserves to be assigned without Proved Reserves.

Erroneous disclosures by oil and gas entities

ASX also released a compliance update in February 2019 which highlighted ASX's recent observance of oil and gas entities releasing announcements which do not comply with the requirements of Chapter 5 of the Listing Rules or are potentially misleading. In these circumstances, ASX may require an entity to publish an announcement which updates, corrects or retracts the non-compliant or objectionable disclosures.

The compliance update refers to:

  • disclosures of project economics (particularly in project valuation for Prospective Resources);
  • a need for cautionary statements for resource estimates; and
  • other requirements when reporting Prospective or Contingent resources.

Clearly, ASX has recognised these erroneous disclosures and intends to stamp them out. It is likely ASX will address these issues during the formal consultation process with oil and gas entities later in the year.

What should you do to get ready for PRMS 2018?

ASX is providing a transition period for oil and gas entities to update their reporting systems to align with the PRMS 2018 and will allow oil and gas entities to satisfy their Chapter 5 obligations either by:

  • continuing to report in accordance with the PRMS 2007; or
  • making an early transition to reporting in accordance with the PRMS 2018,

provided they clearly disclose which PRMS version they are reporting under.

Due to the apparent inevitability of ASX Chapter 5 Listing Rule changes, listed oil and gas companies should strongly consider updating their reporting systems sooner rather than later to ensure they can meet the new requirements.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.