leviathan gas drill.
(photo credit: (Albatross))
The Israel Securities Authority on Monday presented its new reporting rules for
oil and gas exploration companies. Securities Authority Corporation Finance
Department director Shirel Guttman-Amira presented the new rules in a special
The ISA wants to prevent the flood of incomprehensible
announcements and to increase the transparency of the oil and gas exploration
partnerships to their investors. The ISA said the document was a preliminary
draft that was being submitted for public comments, after which the final draft
would be written and submitted.
“We discussed whether to require the
publication of data that was not yet precise and includes a degree of
subjectivity, but the discussion was between some uncertainty in reports and
trading based on rumors,” Guttman-Amira said.
“Between the two choices,
we preferred the mandatory obligation of reporting, even if there is still a
degree of uncertainty.”
“At the core of the guidelines is the Petroleum
Resources Management System [PRMS], which is used by the global oil and gas
industry, including in the US and Canada,” she said.
The ISA made minor
adjustments to the PRMS model, but the new rules fully rely on its precise
definitions and forbid notices to the TASE that do not use the model’s
In addition to the requirement to use the PRMS model, the
ISA has ordered that the discovery of oil resources be made at the project
level, in contrast to the US and Canada, where it is permissible to announces
reserves according to segments at the state level, or by type of
The ISA’s guidelines divide oil resources or wells into two
main categories: prospective resources (before the drilling of an exploratory
well) and conditional resources or reserves (after the drilling of an
exploratory well). All announcements after drilling of an exploratory well will
now be required to use PRMS language, as defined by the ISA. For stages
preceding the drilling of an exploratory well, the ISA recognizes that it is
sometimes necessary to make a quantitative report about prospective resources,
“despite the subjective nature of this kind of information.”
oil and gas exploration partnerships will be required to include in their
announcements a warning that the information therein is only an assessment. An
announcement will also include an opinion on the reserves available to the
partnership and an opinion on the conditional or prospective resources, provided
that it has a material effect on the type, quantity or other critical aspects of
The ISA said it recognizes that application of the PRMS model
would not solve all the industry’s problems. “It should be noted that
evaluations based on the model include a degree of subjectivity,” the document
The PRMS model is based on a three-tiered statistical model: 1P, 2P
and 3P. 1P includes data on the number of barrels of oil with a 90 percent
chance of production; 2P has a 50% chance of production; and 3P has a 10% chance
of production. Givot Olam Oil Exploration LP used these classifications in its
latest report on the Meged 5 well.
By requiring oil and gas exploration
partnerships to use the PRMS model, the ISA seeks to provide credible and
comparable information about the statistical chances of each project’s
To eliminate the lack of uniformity and clarity in
announcements, the ISA has also set up a disclosure and announcement oversight
mechanism comprising several key elements.
First, partnerships will be
required to use certified professionals. Second, evaluations must be independent
of the partnership, and the writing and presentation of the evaluation report
will be based on accepted methodologies.
Additional rules include the
disclosure of quantitative and qualitative parameters used for calculating sizes
variables and economic projections, and a declaration by management on
compliance in the preparation of the resources evaluations.
intends to apply the recommendations immediately after receiving comments from
the public over the next few weeks.
“The objective is to apply this
immediately in prospectuses and in upcoming reports published by March 2011,”