Estimated reserves quantities are never 100 percent accurate but are assumed to be reasonably reliable when labeled “proved reserves.” Users of reserves information should be advised, however, that it is a flawed assumption to consider that the proved reserves category constitutes both proof and complete reliability. Proved reserves estimates are no more reliable than that afforded by the quality of the underlying data; the experience, ability, and integrity of the evaluator; and the level of compliance with the relevant reserves definitions and reporting requirements.

Precision and Reliability in Petroleum Reserves Estimates. Harrell, Ron, Summer 2005, pp. 1‑9.

2004 was a momentous year for the oil and gas industry globally. Strong oil demand growth, coupled with the tightest oil supplies in over 25 years, caused oil prices to surge upwards. Several major producers have issued downward revisions of their oil and gas reserves. The authors explore whether existing oil and gas reserves disclosure requirements really meet investor and consumer needs and make several suggestions for improvements to enhance the usefulness of reserves disclosures and to restore user confidence in this critical aspect of reporting by oil and gas companies.

Presenting the Full Picture—Oil and Gas Reserves: Measurement and Reporting in the 21st Century. Newman, Peter J. and Burk, Victor A., Summer 2005, pp. 10‑22.

When oil prices rose in the wake of the 1973 oil embargo it was immediately obvious that there were problems with conventional accounting practices. A number of methods were considered to find a way to adequately represent the actual “value” of oil and gas assets on the balance sheet. In 1978, the FASB issued FASB No. 19 with the intention of replacing the full cost (FC) and successful efforts (SE) accounting methods, with reserve recognition accounting (RRA).

Modern Reserve Disclosure. Johnston, Daniel, Summer 2005, pp. 23‑30.

Provision 102 of the American Jobs Creation Act of 2004 (AJCA) added a new deduction based on domestic production activities. Internal Revenue Code (IRC) § 199 implements the domestic production deduction, and the domestic upstream segment of the oil and gas industry should benefit from this. There are, however, many unanswered questions regarding how this deduction will impact oil and gas partnerships. Caution should be exercised in rearranging business affairs to obtain or maximize the IRC § 199 deduction. Other tax and business issues may outweigh the desirability of taking the IRC § 199 deduction.

The Impact of the Domestic Production Deduction on Domestic Oil and Gas Exploration and Production Partnerships. Pulliam, Robert D.; Frost, Sandy; and Wilson, William H., Summer 2005, pp. 31‑45.

In 2000, the Internal Revenue Service adopted Revenue Procedure 2000-37 allowing taxpayers a method to effect “reverse exchanges” or parking arrangements for a maximum period of 180 days. Two years later, the Service published Revenue Procedure 2002-22, establishing ruling guidelines for tenant-in-common sponsors and allowing up to 35 investors to combine their capital as owners of undivided interests that would not be considered “partnership interest” for §1031(a)(2)(D). This began the explosive growth of the replacement property industry.

Like-Kind Exchanges: The Basics and Beyond. Gelson, Andrew, Summer 2005, pp. 46‑82.

Unitization effectively reallocates property rights in an efficient manner and leads to an optimal rate of extraction of resource. Because unitization is more likely to be undertaken when the price of oil is low rather than when it is high, a sub optimal amount of unitization will occur in times of high oil prices. For this reason regulatory agencies should be more watchful and more ready to intervene to encourage unitization in times of higher prices than in times of low prices.

Determining the Relationship between Price and the Decision to Voluntarily Unitize an Oil and Gas Reservoir: A Multiplan Model. MacDonald, Stuart T., Summer 2005, pp. 83‑94.

In this the last installment of a four-part series on fiscal system analysis and design, meta-modeling is employed to couple the results of a simulation model with regression analysis. In the three previous installments, the meta-modeling approach was applied to concessionary systems and to examine the impact of royalty relief on the Deepwater Gulf of Mexico Na Kika development. The purpose of this paper is to quantify the influence of private and market uncertainty on the computation of the economic and system measures associated with the Angolan Girassol Deepwater field.

A Meta-Modeling Approach to Fiscal System Analysis—IV. Fiscal Design: A Case Study of Girassol. Kaiser, Mark J. and Pulsipher, Allan G., Summer 2005, pp. 95‑112.