Right under our noses (and with a big h/t to market website:
SeekingAlpha and Reuters' Felix Salmon), the historically incompetent and corrupt Securities and Exchange Commission (SEC)--the same folks that brought us Madoff, Enron and Worldcomm--has opened a brand-spanking-new casino on Wall Street for big oil.
Just in case anyone had any doubts, whatsoever, about the pathetic state of regulatory reform on Wall Street, where we're being told, even now, that woefully ineffective legislative efforts are supposedly "putting a saddle" on the many decades of Wall Street excesses that have brought this country to its knees, a story comes along which exemplifies just how pathetically screwed-up things are--in the real world of Wall Street greed and corruption--in this regard, even now.
So, after reading this incredible story, if you don't agree that the so-called "Wall Street regulatory reform" effort is little more than lip service put forth by our totally-pwned government--and I've documented these realities, extensively, over recent weeks and months such as the diaries available via links,
here,
here, and
here, and in many other posts--then I guess I'm wasting my time.
As of this past weekend, we're now learning of a major change in SEC market regulations, as they relate to the benefit of the oil industry, that screw around with the public's perspective of that sector in ways only a true crook and con artist could fully appreciate.
Putting this in as simplistic, layman-like terms as possible, the SEC is now enabling big oil to mark-to-model their potential/future revenues based upon blue smoke and mirrors--and little more than a few fancy Powerpoint presentations--as they relate to the totally bogus concept that peak oil has not peaked and that, through some miracle or act of god, the Earth is awash in massive new underground seas of black gold, just awaiting big oil's divine intervention, but after companies such as BP, Exxon-Mobil and Shell add those resources/assets to its balance sheets, regardless of whether or not those oil reserves even exist!
From Reuters' Felix Salmon, late Friday: "The SEC surrenders to the oil industry."
The SEC surrenders to the oil industry
Posted by: Felix Salmon
Reuters
November 20th, 2009
What are the consequences of allowing multi-billion-dollar systemically important multinational corporations to report their assets using proprietary mark-to-model tools involving discredited Monte Carlo simulations? I think we all know the answer to that one. But unbelievably, after such shenanigans contributed enormously to the greatest financial meltdown in living memory, the SEC is now set to allow more or less exactly the same thing in the oil industry.
Otto points to a stunning report by oil consultant Alan von Altendorf which spells it all out. Up until now, oil companies needed to actually prove they had reserves before they reported proven oil reserves. Now, however, the SEC is allowing them to use internal, proprietary computer models to essentially pull their "proven reserve" numbers out of thin air (or the nearest friendly Monte Carlo simulation).
Von Altendorf goes into great detail about how such numbers are useless and meaningless, and how the "proven reserve" rules should probably be tightened, rather than loosened, given the number of enormous write-downs in proven reserves which have taken place across the oil industry in recent years.
So what's the SEC thinking here? Frankly, it's not thinking at all: this is just another case of regulatory capture. And a sign that, so far at least, nothing has changed at the unsalvageable and dysfunctional institution.
The link to this three-part report, in the blockquote, above, is a PDF/Adobe Acrobat file. Here's a link to an HTML version on the Seeking Alpha market website, and the opening statement in it: "The Oil Casino: SEC Heading for Monte Carlo."
The Oil Casino: SEC Heading for Monte Carlo
Alan von Altendorf
Seeking Alpha
November 20, 2009
My purpose is to alert you to the revision of SEC Regulation S-K and Regulation S-X effective January 1, 2010. Concealed in a handful of benign new regs is a financial truck bomb that's going to blow away "proved reserves" as a meaningful metric of oil company assets.
Old definition: Proved Reserves are those quantities which can be estimated with reasonable certainty to be commercially recoverable from known reservoirs under defined economic conditions. Proved quantities are limited by the lowest known hydrocarbon as seen in a well penetration unless otherwise indicated by definitive geoscience, engineering, or performance data. Seismic data alone is not sufficient to define fluid contacts. Undeveloped locations may be classified as Proved in undrilled areas of a reservoir that can be judged with reasonable certainty to be commercially productive.
New definition: Industry is no longer constrained by the criterion of certainty. An operator can book incremental proved reserves from planned enhanced recovery projects (gas injection, acid fracturing) based on a pilot project. Coal seam gas, bitumen, oil shale and other unconventional resources can be booked as Proved Reserves. Estimated reservoir properties in the aggregate is a departure from the old rules. The new SEC definition does not require that an analogous reservoir has to be in the immediate area or in pressure communication. Seismic analysis and reservoir models are sufficient to book Proved Reserves.
Hold on to your shorts, it gets worse.
Under the new SEC rules you don't have to drill a well and actually produce oil. An operator can establish levels of lowest known hydrocarbons and highest known oil through "reliable technology" other than well penetrations. It doesn't have to be 90% reliable or widely accepted by industry peers. It can be AVO bright spots, or a fuzzy patch of seismic that could conceivably be a mud volcano, or the ridiculous Russian hokum of "passive" hydrocarbon indicators. You don't even have to explain exactly what your technology does, if it's proprietary and trade secret.
From the SEC, as quoted by von Altendorf...
We [the SEC] proposed to define the term ``reliable technology,'' expressed in probabilistic terms, as technology that has been proven empirically to lead to correct conclusions in 90% or more of its applications. Several commenters expressed concern that this proposed 90% threshold would be difficult to verify and support on an ongoing basis. We agree that a bright line test would be difficult to apply to a particular technology or mix of technologies to determine their reliability. Therefore, we are not adopting the 90% threshold as part of the definition... The proposal also would have required reliable technology to be ``widely accepted.'' However, some commenters were concerned that this requirement would exclude proprietary technologies that companies develop internally that have proven to be reliable. We concur with these commenters and have removed the ``widely accepted'' requirement from the final rule." [Federal Register Vol. 74, No. 9, p 2166]
And, back to his post on Seeking Alpha...
Who were the commenters in favor of playing dueces wild? Basically everybody. Oil companies, professional groups like SPE and AAPG, consultants, academics, Wall Street speculators and Bush Administration lawyers...
Again, for all of you doubters out there wondering about the validity and incredulity of this story, I would strongly suggest you read this absolutely mind-blowing, in-depth report and analysis of the matter from Alan von Altendorf, entitled: "21 Darts." (Again, this is the PDF file link, the HTML version is available in the link in the paragraph preceding the blockquote, above.)
Von Altendorf goes into details on this matter in a manner by which any peak-oil wonk (Jerome a Paris and Meteor Blades are you reading this?) would have a freakin' field day! Von Altendorf's documentation is nothing less than overwhelming. And, it all points to the basic fact that big oil now has a license to totally deceive their stockholders and the public about the breadth and value of their oil reserves.
Do you really need to know anything other than the reality that this is Wall Street's latest bubble-in-the-making?
Apparently, as I noted in (Section "#4" of) my diary from last Tuesday, oil speculation--as noted by folks like NYU economist Nouriel Roubini, and many others--just wasn't enough to satisfy Wall Street's hunger for profits, no matter what the cost to a Main Street that's been reeling in financial losses for over two years!
Commodities speculation was a mere appetizer, as it were, to the travesty that is now playing out before us with regard to giving big oil carte blanche to put forth a meme with regard to oil that's not too far removed--a close cousin, so to speak--from those of the global warming denier-neanderthals that tell us there's no such thing as climaticide!
Oil shortage, what oil shortage? (Clearly, above and beyond heavily encouraging corruption and ongoing damage to our economy via Wall Street greed--same storyline, but this time it's big oil not housing--it also flies in the face of every sane energy policy advocate on the planet, too!)
"Drill, Baby, Drill," ain't got nuthin' on the Securities and Exchange Commission.
This cannot stand!