THE WALL STREET JOURNAL: ConocoPhillips Drops Controversial Oil Reserves Figure: “In the latest accounting change by a large oil company involving oil reserves, ConocoPhillips (COP) said Friday it will no longer report the average cost of new production to the Securities and Exchange Commission.”: “Several companies have announced accounting changes since the Shell scandal broke.” (ShellNews.net) Posted 4 Dec 04
By JOHN M. BIERS
Of DOW JONES NEWSWIRES
HOUSTON -- In the latest accounting change by a large oil company involving oil reserves, ConocoPhillips (COP) said Friday it will no longer report the average cost of new production to the Securities and Exchange Commission.
The figure, known within the industry as the "finding and development cost," is a closely-watched benchmark for evaluating a company's comparative success in finding low-cost reserves. The change reflects the SEC's concern that company-generated calculations can mislead investors, experts said.
ConocoPhillips did not respond to messages late Friday afternoon after the filing was announced. SEC officials could not be reached.
ConocoPhillips is shelving the number "because this metric may not necessarily represent total finding and development costs for projects under way or may not be indicative of expected future finding and development costs," the company said.
Like other leading companies, ConocoPhillips has frequently boasted low finding and development costs. The figure was among the most prominent in a February 2004 company news release announcing last year's results which quoted a company executive calling 2003 "a very successful" year. The news release said ConocoPhillips averaged $5.35 per barrel of oil equivalent for 2003 and had a five year average of $4.29 per barrel.
The SEC doesn't require the calculation and hasn't issued guidelines on reporting finding and development costs, experts said. Depending on what data is used over what period, Wall Street analysts and others sometimes come up with significantly different figures. Consultant John S. Herold estimated ConocoPhillips' 2003 finding and development costs at $5.63 per barrel and its three-year average at $9.17. The industry average was $7.17 for 2003 and $6.63 over three years, according to the Herold report.
Outside analysts will still be able to calculate this figure based on other data submitted by ConocoPhillips to the SEC, but the change announced Friday means ConocoPhillips won't report company-generated numbers.
In recent months, the SEC has been questioning companies about the benchmark as part of a stepped-up oversight campaign in the aftermath of the large reserve downgrade by Royal Dutch/Shell (RD,SC), said Scott Rees, president of Netherland, Sewell and Associates Inc., a Dallas consultant specializing in oil reserves accounting.
"The SEC is concerned that it is not really a true reflection of the costs," Rees said.
New Canadian securities regulations require companies to include the future capital costs of developing reserves, which raises the costs.
Individual U.S. companies are hesitant to include these costs unless the whole industry is forced to. As a result, most companies will probably drop the calculation rather than adopt a standard that makes them look bad next to their peers, Rees said.
Several companies have announced accounting changes since the Shell scandal broke. ChevronTexaco Corp. (CVX) recently said it would change its methodology for booking reserves based on commodity prices. A number of smaller companies, including Anadarko Petroleum Corp. (APC) and Kerr-McGee Corp. (KMG) have hired independent consultants to evaluate their procedures.
-By John M. Biers, Dow Jones Newswires; 713-547-9214; john.biers@dowjones.com