Shale Loses 9 Billion Barrels of Reserves After SEC Inquiries
Ultra responded that its drilling plans changed due to falling prices and the shrinking availability of financing. The company sometimes delayed or canceled certain wells in favor of more profitable locations, the company wrote.
Ultra ultimately agreed to a small revision to its 2011 reserves booking. It was disclosed in a footnote to its 2015 annual report, after the SEC completed its review in February. In the same report, Ultra deleted all of its undeveloped reserves because of uncertainty about financing.
The letters were made public in mid-March. By then, Ultra’s shares had plummeted to 58 cents, and the bonds issued less than two years before were selling for about 8 cents on the dollar. Prices have since rebounded.
Sandi Kraemer, Ultra’s director of investor relations, declined to comment. So did Judith Burns, an SEC spokeswoman.
Other companies have also drawn SEC scrutiny. The agency said in correspondence with Goodrich Petroleum Corp. that the company drilled only 4 percent of its undeveloped reserves each year, a slower pace than necessary to comply with the five-year rule. Linn Energy LLC kept undeveloped reserves on its books at the end of 2014 even after cutting its drilling budget by 61 percent. Both companies have gone bankrupt in recent months owing a combined $8.1 billion. Neither would comment for this story.
For many drillers, “development plans weren’t realistic,” said Julie Hilt Hannink, head of energy research at CFRA, an accounting advisory firm in New York.
Penn Virginia Corp., a company in which billionaire George Soros had a stake, booked paper wells in natural gas prospects where it hadn’t drilled in years, according to letters from the SEC.
“Your actual drilling has consistently failed to follow schedules,” the SEC wrote in an April 2015 letter. Penn Virginia responded that it had intended to get to the wells within five years but its plans changed when prices fell.
That’s not what company executives told investors, according to conference call transcripts. H. Baird Whitehead, Penn Virginia’s chief executive officer, said in a November 2012 call that “under almost no scenario” would the company resume gas drilling. Yet, when Penn Virginia filed its report with the SEC three months later, the prospects accounted for more than 40 percent of its reserves.
During an April 2013 call, Whitehead said, “We don’t plan on drilling natural gas wells.” Still, the undeveloped natural gas wells comprised 19 percent of the company’s reserves at the end of that year. Patrick Scanlan, a spokesman for Penn Virginia, declined to comment.
The company intended to follow the SEC’s five-year rule, according to a person familiar with Whitehead’s thinking.
Penn Virginia erased most of its undeveloped reserves this year. The company filed for bankruptcy May 12 with $1.2 billion in debt. Records show Soros sold his six million shares in the first quarter.
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