PRA Supporting Statement (6)

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Form S-1 Registration Statement

OMB: 3235-0065

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SUPPORTING STATEMENT FOR PROPOSED MODERNIZATION OF THE OIL AND GAS REPORTING REQUIREMENTS


This submission, pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C. §3501, et seq., consists of this supporting statement and Release No. 33-8935 (June 26, 2008).


A. JUSTIFICATION


1. NECESSITY FOR THE INFORMATION COLLECTION


In Release No. 33-8995, the Securities and Exchange Commission adopted rule and form amendments that contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995. The titles for this information are:


(1) “Regulation S-K” (OMB Control No. 3235-0071);1

(2) “Industry Guides” (OMB Control No. 3235-0069);

(3) “Form S-1” (OMB Control No. 3235-0065);

(4) “Form S-4” (OMB Control Number 3235-0324);

(5) “Form F-1” (OMB Control Number 3235-0258);

(6) “Form F-4” (OMB Control Number 3235-0325);

(7) “Form 10” (OMB Control No. 3235-0064);

(8) “Form 10-K” (OMB Control No. 3235-0063); and

(9) “Form 20-F” (OMB Control No. 3235-0063).


These collections of information are necessary for the Commission to carry out the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. They set forth the disclosure requirements for periodic reports and registration statements and prospectuses. These documents are prepared by companies to ensure that investors have the information they need to make informed investment decisions in registered offerings and secondary market transactions, and informed decisions in voting their securities.


2. PURPOSE OF THE INFORMATION COLLECTION


The new rules and amendments increase existing disclosure burdens for annual reports on Forms 10-K2 and 20-F and registration statements on Forms 10, 20-F, S-1, S‑4, F-1, and F-4 by creating the following new disclosure requirements, many of which were requested by industry participants:


  • Disclosure of reserves from non-traditional sources (i.e., bitumen, shale, coalbed methane) as oil and gas reserves;

  • Optional disclosure of probable and possible reserves;

  • Optional disclosure of oil and gas reserves’ sensitivity to price;

  • Disclosure of the company’s progress in converting proved undeveloped reserves into proved developed reserves, including those that are held for five years or more and an explanation of why they should continue to be considered proved;

  • Disclosure of technologies used to establish reserves in a company’s initial filing with the Commission and in filings which include material additions to reserves estimates;

  • The company’s internal controls over reserves estimates and the qualifications of the technical person primarily responsible for overseeing the preparation or audit of the reserves estimates;

  • If a company represents that disclosure is based on the authority of a third party that prepared the reserves estimates or conducted a reserves audit or process review, filing a report prepared by the third party; and

  • Disclosure based on a new definition of the term “by geographic area.”


In addition, the amendments harmonize the disclosure requirements that apply to foreign private issuers with the disclosure requirements that apply to domestic issuers with respect to oil and gas activities. In particular, foreign private issuers must disclose the information required by Items 1205 through 1208 of Regulation S-K regarding drilling activities, present activities, delivery commitments, wells, and acreage, which previously were not specified in Appendix A to Form 20-F. These disclosure items codify the substantive disclosures called for by Items 4 through 8 of Industry Guide 2, although much of this disclosure may have been disclosed by some companies under the more general discussions of business and property on that form.


3. USE OF ELECTRONIC MEDIA


Periodic reports on Forms 10-K and 20-F and registration statements on Forms 10, 20-F, S-1, S-4, F-1, F-4 are filed electronically with the Commission using the Commission’s Electronic Data Gathering and Retrieval (EDGAR) system.


4. DUPLICATION


The Energy Information Administration of the Department of Energy (DOE) collects information from companies on oil and gas reserves and production. This information is not made public on a company-by-company basis. In some cases the information is based on a company’s status as the operator of a project, rather than based on a company’s financial interest in the project. Therefore, this information has limited use for investors to make investment decisions on individual companies.


5. METHODS USED TO MINIMIZE BURDEN ON SMALL BUSINESSES


The amendments apply to all issuers equally. We believe that separate disclosure requirements for small entities that would differ from the adopted reporting requirements, or exempting small entities from these disclosures, would not achieve our disclosure objectives. In particular, we believe the changes that are reflected in the amendments would balance the informational needs of investors in smaller companies with the burdens imposed on such companies by the disclosure requirements.


We note that a number of the new disclosure items are voluntary. We believe that small entities are more likely to take advantage of these permitted disclosures, particularly regarding probable and possible reserves, than larger companies, which typically already have significant proved reserves. Further, a wholesale exemption for small entities would thwart our intent to uniformly apply the disclosure and other requirements.


The amendments also would clarify and consolidate the requirements for all public companies into Regulation S-K, which may make such requirements easier to access. This may simplify the process of preparing a company’s annual report or registration statement. In addition, the proposed tabular format for making the disclosures may lead to systemization of the disclosures, making such information simpler to organize.


6. DESCRIPTION OF CONSEQUENCES OF LESS FREQUENT COLLECTION


Less frequent collection would mean that current information may not be available to investors and may potentially decrease investor confidence in the full and fair disclosure system that is the hallmark of the U.S. capital markets.


7. EXPLANATION OF SPECIAL CIRCUMSTANCES


Not applicable.


8. CONSULTATION OUTSIDE THE AGENCY


The Commission has issued a release soliciting comment on the revised “collection of information” requirements and the associated paperwork burdens. A copy of this release is attached. Comments on Commission releases are generally received from companies, investors and other market participants.


9. PAYMENT OR GIFT TO RESPONDENTS


Not applicable.


10. ASSURANCE OF CONFIDENTIALITY


Not applicable.


11. SENSITIVE QUESTIONS


Not applicable.


12. and 13. ESTIMATES OF HOUR AND COST BURDENS


The paperwork burden estimates associated with the amendments include the time and cost of preparing and reviewing disclosure, filing documents or otherwise publicizing information, and retaining records.


These estimates represent the average burden for all companies, both large and small. We expect that the burdens and costs could be greater for larger companies and lower for smaller companies. For Securities Act registration statements on Forms S-1, S-4, F-1, F-4, 10, and 20-F, we estimate that 25% of the burden of preparation is carried by the company internally and that 75% of the burden is carried by outside professionals retained by the company at an average cost of $400 per hour. For annual reports on Forms 10-K and 20-F, we estimate that 75% of the burden of preparation is carried by the company internally and that 25% of the burden is carried by outside professionals retained by the company at an average cost of $400 per hour. The portion of the burden carried by outside professionals is reflected as a cost, while the portion of the burden carried by the company internally is reflected in hours.


Tables 1 and 2, below, illustrates the incremental annual compliance burdens of the collection of information in hours and in cost for our amendments. The burden was calculated by multiplying the estimated number of additional annual responses we believe will be generated by the estimated average number of hours each entity will spend completing the form or complying with the requirements of the rules.


The following tables summarize the changes to the PRA estimates:


Table 1: Calculation of Incremental Paperwork Reduction Act Burden Estimates for Exchange Act Periodic Reports



Form

Annual

Responses

Incremental

Hours/Form

Incremental

Burden


75% Issuer

25%

Professional

$400 Professional

Cost


(A)

(B)

(C)=(A)*(B)

(D)=( C)*0.75

(E)=(C)*0.25

(F)=(E)*$400

10-K3

206

100

20,600

15,450

5,150

2,060,000

20-F

35

150

5,250

3,938

1,312

525,000

Total

241


25,850

19,388

6,462

2,585,000


Table 2: Calculation of Incremental Paperwork Reduction Act Burden Estimates for Securities Act Registration Statements and Exchange Act Registration Statements



Form

Annual

Responses

Incremental

Hours/Form

Incremental

Burden


25% Issuer

75%

Professional

$400 Professional

Cost


(A)

(B)

(C)=(A)*(B)

(D)=( C)*0.25

(E)=(C)*0.75

(F)=(E)*$400

10

5

100

500

125

375

150,000

20-F

2

150

300

75

225

90,000

S-1

38

100

3,800

950

2,850

1,140,000

S-4

17

100

1,700

425

1,275

510,000

F-1

2

150

300

75

225

90,000

F-4

3

150

450

113

337.5

135,000

Total

67


7,050

1762.5

5,287.5

2,115,000


These burdens are attributable only to those forms submitted by oil and gas companies. Table 3 below distributes the incremental burden and cost estimated above for forms submitted oil and gas companies to the total number of each form type (submitted by all companies) to estimate an average incremental burden and cost per form.


Table 3: Estimates of Incremental Hour and Cost Burdens per Form4



Form


Burden


Cost

Total Annual Responses

Burden per Form

Cost per Form



(A)

(B)

(C)

(D) = (A) / (C)

(E) = (B) / (C)

10

125

150,000

238

0.525

630.3

10-K

15,450

2,060,000

13,545

1.1

152.1

20-F

4,0135

615,000

942

4.3

652.867

S-1

950

1,140,000

1,168

0.813

976.0

S-4

425

510,000

619

0.7

823.9

F-1

75

90,000

42

1.78

2142.86

F-4

113

135,000

68

1.661

1985.3



Table 4 illustrates the total annual compliance burden of the collection of information in hours and in cost. The burden was calculated by adding the incremental burdens to the existing burdens.


Table 4: Estimates of Hour and Cost Burdens


Form

Current Annual Responses

 Current Hours/Form

Incremental Increase Hours/Form

Total Hours/Form

Total Burden Hours

Current Cost/Form

Incremental Increase Cost/Form

Total Cost/Form

Total Cost (1,000s)


(A)

(B) 

(C)

(D)=(B)+(C)

(E)=(A)*(D)

(F)

(G)

(H)=(F)+(G)

(I)=(A)*(H)

10

238

49.26

0.525

49.785

11,849

$59,117.65

$630.3

$59,747.89

$14,220

10-K

13,545

1,575.3

1.1

1,576.4

21,353,389

$210,044.9

$152.1

$210,197

$2,847,119

20-F

942

657

4.3

661.3

622,907

$788,190

$652.867

$788,842.867

$743,089.98

S-1

1,168

207.5

0.813

208.313

243,310

$249,000

$976.0274

$249,976

$291,972

S-4

619

1,016

0.7

1,016.7

629,329

$1,219,202.9

$823.9

$1,220,026.8

$755,197

F-1

42

450

1.78

451.78

18,975

$539,700

$2,142.86

$541,842.9

$22,757.401

F-4

68

360.5

1.661

362.161

24,627

$432,600

$1,985.3

$434,585.3

$29,515


14. ESTIMATE OF COST TO FEDERAL GOVERNMENT


The estimated cost of preparing the proposed amendments is approximately $50,000.


15. EXPLANATION OF CHANGES IN BURDEN


For purposes of the PRA, we estimated, in the Proposing Release, the total annual increase in the paperwork burden for all affected companies to comply with our proposed collection of information requirements to be approximately 7,472 hours of in-house company personnel time and to be approximately $1,659,000 for the services of outside professionals.6 These estimates included the time and the cost of preparing and reviewing disclosure and filing documents. Our methodologies for deriving the above estimates are discussed below.


Our estimates represented the burden for all oil and gas companies that file annual reports or registration statements with the Commission. Based on filings received during the Commission’s last fiscal year, we estimate that 241 oil and gas companies file annual reports and 67 oil and gas companies file registration statements. Most of the information called for by the new disclosure requirements, including the optional disclosure items, is readily available to oil and gas companies and includes information that is regularly used in their internal management systems. These disclosures include:


  • Disclosure of reserves from non-traditional sources (i.e., bitumen, shale, coalbed methane) as oil and gas reserves;

  • Optional disclosure of probable and possible reserves;

  • Optional disclosure of oil and gas reserves’ sensitivity to price;

  • Disclosure of the company’s progress in converting proved undeveloped reserves into proved developed reserves, including those that are held for five years or more and an explanation of why they should continue to be considered proved;

  • Disclosure of technologies used to establish reserves in a company’s initial filing with the Commission and in filings which include material additions to reserves estimates;

  • The company’s internal controls over reserves estimates and the qualifications of the technical person primarily responsible for overseeing the preparation or audit of the reserves estimates;

  • If a company represents that disclosure is based on the authority of a third party that prepared the reserves estimates or conducted a reserves audit or process review, filing a report prepared by the third party; and

  • Disclosure based on a new definition of the term “by geographic area.”


We estimated that, on average, each company would incur a burden of 35 hours to prepare these disclosures in an annual report or registration statement.


The amendments also apply several disclosure items to foreign private issuers that previously did not apply to them. As noted above, many of these disclosure items, such as drilling activities, wells and acreage, require the issuer to provide more specificity about its business and property. Foreign private issuers that do not currently provide such specificity would incur an added burden to present such disclosures in their filings. In the Proposing Release, we estimated that this burden would be 20 hours per foreign private issuer.


We received few comments regarding our estimates. Several large oil companies, and an industry organization that primarily represents large oil companies, believed that the estimates were too low. They believed that the new rules and amendments would increase their burden by 10,000 to 15,000 hours per year. However, these commenters included the initial cost to change their internal systems to provide the new required disclosures in their estimates. Based on conversations with these commenters, the staff understands that they believed that the ongoing burden would be approximately one third of that estimate. For purposes of its Paperwork Reduction Act estimate, the staff considers the ongoing annual burden and spreads the initial transitional burden of compliance with new rules and regulations over a three year period.


In addition, these commenters indicated that the two most significant burdens that stemmed from the proposed use of different prices for disclosure and accounting purposes and the increased detail in disclosures that would result from the proposed definition of the term “geographic area” and the proposed disclosure by type of accumulation. It should be noted that these commenters have significant reserves spread worldwide. Some of these large companies have as much as 10,000 times the amount of reserves of the median oil and gas company. These large companies likely would be more significantly impacted by the level of detailed disclosure that the proposals would have required compared to the vast majority of oil and gas companies in our reporting system, which do not have such extensive global operations. Therefore, we do not believe that the estimate provided by those large oil and gas companies necessarily would be applicable to most oil and gas companies. However, in response to the concerns that they expressed, the final rules do not require the use of different prices for disclosure and full cost accounting purposes. We also intend to continue to work with the FASB to align the accounting standards with that pricing mechanism. In addition, we have significantly reduced the level of detailed geographic and product disclosure that the rules require. Finally, we are providing for a substantial transition period to allow companies to adjust their systems to comply with the new rules. We believe that these changes will help to mitigate the increased burden of the new rules.


Table 5 below illustrates the changes in cost and hour burdens from the burden estimates currently approved by OMB. Columns (A) and (B) represent the total hour and cost burden estimates for the respective forms under the proposed rules. Columns (C) and (D) represent the previous burden estimates most recently submitted to OMB. Columns (E) and (F) represent the change in burden from the previous estimates. Columns (G) and (H) represent the incremental hour and cost burden as a result of the proposed amendments. Columns (I) and (J) represent any adjustment, which encompasses any change in burden that is not attributable to the amendments. All changes to burden in this submission are attributable to the proposed amendments.



Requested Burdens

Current Burden

Change in Burden

Program Change

Adjustment


Burden

Hours

(A)

Cost (1,000s)

(B)

Burden

Hours

(C)

Cost (1,000s)

(D)

Burden

Hours

(E)=(A)-(C)

Cost

(1,000s))

(F)=(B)-(D)

Burden

Hours

(G)

Cost (1,000s)

(H)

Burden Hours

(I)

Cost

(1,000s)

(J)

10

11,849

14,220

11,724

14,070

125

150

125

150

0

0

10-K

21,353,389

2,847,119

21,337,939

2,845,059

15,450

2,060

15,450

2,060

0

0

20-F

622,907

743,090

618,894

742,475

4,013

615

4,013

615

0

0

S-1

243,310

291,972

242,360

290,832

950

1,140

950

1,140

0

0

S-4

629,329

755,197

628,904

754,687

425

510

425

510

0

0

F-1

18,975

22,892

18,900

22,667

75

90

75

90

0

0

F-4

24,627

29,755

24,514

29,417

113

135

113

135

0

0

Table 5: Explanation of Changes in Burden



16. INFORMATION COLLECTIONS PLANNED FOR STATISTICAL PURPOSES


Not applicable.


17. EXPLANATION AS TO WHY EXPIRATION DATE WILL NOT BE DISPLAYED


Not applicable.


18. EXCEPTIONS TO CERTIFICATION


Not applicable.


B. COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS


Not applicable.


1 The paperwork burden from Regulation S-K and the Industry Guides is imposed through the forms that are subject to the disclosures in Regulation S-K and the Industry Guides and is reflected in the analysis of those forms. To avoid a Paperwork Reduction Act inventory reflecting duplicative burdens, for administrative convenience we estimate the burdens imposed by each of Regulation S-K and the Industry Guides to be a total of one hour.

2 The disclosure requirements regarding oil and gas properties and activities are in Form 10-K as well as the annual report to security holders required pursuant to Rule 14a-3(b) [17 CFR 240.14a‑3(b)]. Form 10‑K permits the incorporation by reference of information from the Rule 14a‑3(b) annual report to security holders to satisfy the Form 10-K disclosure requirements. The analysis that follows assumes that companies would either provide the proposed disclosure in a Form 10-K or incorporate the required disclosure into the Form 10-K by reference to the Rule 14a-3(b) annual report to security holders if the company is subject to the proxy rules. This approach takes into account the burden from the proposed disclosure requirements that are included in both Form 10-K and Regulation 14A or 14C.

3 The burden estimates for Form 10-K assume that the requirements are satisfied by either including information directly in the annual reports or incorporating the information by reference from the Rule 14a-3(b) annual report to security holders.

4 Estimates in Tables 3, 4 and 5 may reflect rounding errors and may not precisely correspond to estimates in the Form I-83.

5 The total incremental burden and cost for Form 20-F are sums of the amounts in Tables 1 and 2, above, representing estimates based on whether the form is used to file an annual report (Table 1) or a registration statement (Table 2).

6 For administrative convenience, the presentation of the totals related to the paperwork burden hours have been rounded to the nearest whole number and the cost totals have been rounded to the nearest thousand.

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