Title: Market impact of proved reserves disclosures by US publicly held oil and gas exploration and development companies

Authors: Charles Gray; Zane Swanson

Addresses: University of Central Oklahoma, 100 North University Drive, Edmond, OK 73034, USA ' University of Central Oklahoma, 100 North University Drive, Edmond, OK 73034, USA

Abstract: US generally accepted accounting principles (GAAP) permit publicly held oil and gas exploration and development companies (OGEs) to report exploration and development costs under either the successful efforts (SE) or the full cost pool (FC) method, which results in a lack of comparability of financial statements of FC and SE companies. In an attempt to eliminate information asymmetry, OGEs must disclose detailed information about proved reserves, including the discounted present value of future cash flows from proved reserves. This study investigates whether these reserve disclosures enhanced comparability between firms using FC and SE accounting. Quantitative research methods utilising multiple regression analysis techniques examine whether the present value of future cash flows from proved reserves discounted at 10% (PV10) and reserve quantity disclosures predict changes in market capitalisation. Although the various reserve disclosures required by the FASB (2014b) reduce information asymmetry between management and investors, the findings from this research indicate that investors in FC and SE companies use different data to determine the prices they are willing to pay for the companies' stocks. Therefore, these disclosures have not provided investors with a uniform set of criteria that can be used to compare a FC company with an SE company.

Keywords: oil reserves; full cost; successful efforts; accounting choice; discounted present value; USA.

DOI: 10.1504/IJAAPE.2017.087240

International Journal of Accounting, Auditing and Performance Evaluation, 2017 Vol.13 No.4, pp.361 - 379

Received: 04 Mar 2016
Accepted: 24 Oct 2016
Published online: 11 Oct 2017 *

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