SEC reserve revisions: do they matter? A primer for the Q4 2015 results season

Reserve bookings mechanisms are sensitive to pricing and activity levels. But past reserve revisions have not always reflected broad pricing movements. For many companies, the 2015 annual redetermination will be calculated using SEC-defined oil and gas prices that have dropped 47% and 42% respectively versus 2014. We expect some companies to report large negative revisions, especially if forecasted activity is radically revised down based on the expectation of structurally lower prices. Revisions will impact access to capital for some, and operational / financial metrics for most. But investors may have factored-in the bad news already, and will likely only react to very large reserves moves (as seen with impairments in Q3).