Washington - Oil companies have come under increased scrutiny for not utilizing 68 million unused acres they already have under lease and for spending far more on stock buybacks than exploration and innovation. Today, U.S. Senator Robert Menendez (D-NJ) is calling on the Securities and Exchange Commission to require oil companies to submit information about if and when they intend to produce oil on unused leases and how much they are spending to produce new oil. In a letter to SEC Chairman Cox today, Senator Menendez urged him to require companies to report when they intend to actually develop their proven undeveloped leases as well as to report their investments in oil development. Senators Russell Feingold (D-WI) and Bernie Sanders (I-VT) also signed the letter.

"As Americans are getting slammed by gas prices, investors and consumers alike want more information on why oil companies are not investing in new production and why they continue to sit on their oil reserves instead of producing oil," said Sen. Menendez. "The SEC needs to create rules that prevent oil companies from leasing huge potential reserves in order to impress investors even as they spend less on producing oil. We have seen record profits, record stock buy backs, but the information on plans to increase production has been hard to come by. If oil companies just intend to count their money, instead of developing their assets, investors have a right to know."

The letter is in response to a proposed SEC rulemaking that creates new categories for "probable" and "possible" reserves. These categories create the potential of oil companies padding their books with reserves, but not report their oil production plans. Senator Menendez is a lead co-sponsor of Senator Russ Feingold's (D-WI) legislation requiring oil companies to utilize the 68 million unused acres under lease or otherwise relinquish the land.

Link to the letter to SEC Chairman Cox: http://menendez.senate.gov/pdf/08012008LettertoSEC.pdf

Text of letter to SEC Chairman Cox:

August 1, 2008
Chairman Christopher Cox
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Dear Chairman Cox:

We write today about, File No. S7-29-07, your proposed rulemaking on how companies report oil and natural gas reserves. We believe the proposal is an important one that reflects changes in technology and generally provides more information for investors. However, the rule can be enhanced by requiring companies to report additional information about their intent to develop their reserves and the amount they are currently spending on oil and natural gas production.

The proposed rule sensibly allows oil companies to use established technologies to prove reserves. The rule would also create new categories of reserves including "probable" and "possible" reserves. These rules, in general, will help add to the mix of information investors have at their disposal. Unfortunately, these new proposed guidelines also have the potential to make nonproducing oil and natural gas leases held by oil companies appear even more valuable by allowing these companies to report more information about reserves, but not requiring them disclose more about their production plans. In fact, these "probable" or "possible" reserves may even serve to mislead investors if further information on production plans is not disclosed.

As you are no doubt aware, investors, consumers, and policy makers are increasingly concerned that oil companies are not actively pursuing oil reserves under land and water they already lease from the federal government. All told there are 68 million acres that oil companies have leased for oil and natural gas exploration where no oil or natural gas has been produced. We believe it is important for investors to know whether they plan to produce on these leases or save them for future production.

This concern is particularly important for proven undeveloped leases (PUDs). Companies can list a PUD if it would be economically viable to extract the oil or natural gas and the company intends to actually produce on that lease. Too often, however, companies have failed to develop their PUDs year after year. To remedy this problem the SEC has proposed a requirement that companies list their older PUDs. That would no doubt be helpful, but we suggest that for investors to truly have the material information they need on reserves, the SEC should require companies to report when they actually intend to develop their PUDs. A production schedule will give investors the information they need to truly assess whether oil companies will create revenue from these valuable assets within a reasonable time frame.

Similarly, investors are also concerned that oil companies are not required to report what they are investing in oil development. The Associated Press recently reported that ConocoPhillips has announced $2.5 billion in stock buybacks for the second quarter of this year-- nine times what it has spent on exploration. ConocoPhillips has since reported that it is now producing 200,000 barrels per day of oil less than it did a year ago. These figures should not just be reported by the Associated Press, but should also be reported to the SEC and in turn to investors. Requiring reporting on investments and planned investments in oil and natural gas development would provide investors with certainty about oil companies' intentions to develop the vast federal lands they have at their disposal.

Thank you for your consideration of this issue. Please do not hesitate to contact us if you have any questions or concerns.

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