Reserves Reporting Under Modern Fiscal Agreements

In the exploration, development, and production of oil and gas resources, the ability to report reserves can be an important factor for many companies when considering upstream opportunities to invest and participate in. A common misconception is that when a company reports reserves, the reserves and underlying resources are owned by the company. While this may be true for some forms of concession and lease agreements, resource ownership almost always remains with the host government under modern production sharing (PSC) and risked technical service agreements (TSA). Reserves are primarily reported to comply with host country resource management requirements or the contractor’s home country capital market regulatory rules. The reporting of reserves reporting does not necessarily imply resource ownership. This paper discusses why the reporting of reserves is an important consideration for many companies and focuses on the key principles and agreement elements that enable reserves to be reported under a wide range of agreement types. The paper also discusses how the evolution of fiscal agreements, from early concessions through present-day risked technical service agreements has changed the way reported reserves are determined. In addition, the paper includes a brief discussion of the industry classification systems that are used to characterize reserves and how the investment community utilizes reserves information to assess company performance. The authors hope that the discussion and insights offered by this paper will improve the understanding of the basis for reserve reporting, clarify that reserve reporting does not necessarily imply ownership of the underlying resources and will help enhance the development of mutually beneficial fiscal agreements in the future.