<<The Canadian gas patch needs a standard conversion>>. Agreed 100%.
I believe politics will get in the way a bit because changing the conversions affects different companies in different ways, since it impacts depletion expense and potential writedowns (those facing a gas writedown may be more enthused about the ratio change, those with large production increases but not large reserve increases will be less so, etc.)
For example, EEE. If they passed the ceiling test last year at 10:1, for sure they would have passed at 6:1. So changing last year's ratio doesn't become an issue for writedowns for that year (I'm assuming that if they change to 6:1 this year they'll have to change the comparative figures too). But should they have to write down actual reserve figures this year, converting to 6:1 will reduce their risk or magnitude of a ceiling test writedown for accounting but will emphasize the current year decrease in reserves on a BOE basis reported in the annual just because the number is bigger. Which figure they care about more, if at all, will influence their stance on changing ratios.
How the ratio change impacts a company's depletion expense in the current year may also influence their stance. Also, oil producers may not wish the ratio change since their reserves on a BOE basis may now be seen in a different light in comparision to a gas producer.
Because of the potential for problematic comparisons, I believe the standardization will arrive and I hope/think the analysts will encourage this. However, as far as I'm aware, the ability to enforce standardization resides with the auditors and only, unfortunately, when they express an opinion on the financials, normally year end. So until at least then, unless a company is in the midst of a financing, I'm thinking we'll have to maintain fruit alert status.
Thanks for mentioning it again - I started to test different scenarios to see their impact on different kinds of companies, and really got a feel for what a pain in the a** the lack of standardization is. It's just one more reason why I like to look at the numbers right from the reserve report (despite their flaws) and at cash flows.
Regards, t. |
