9 February 2012
Ms Diane Lewis
Regulatory and Public Policy
20 Bridge Street
SYDNEY NSW 2000
Dear Ms Lewis
Reserves and Disclosures Rules
The Group of 100 (G100), which is an organization of chief financial officers from Australia's largest business enterprises with the purpose of advancing Australia's financial competitiveness, is pleased to comment on the ASX Public Consultation on Reserves and Resources Disclosure Rules.
The G100 believes that given the variety of circumstances experienced by these companies it is preferable that requirements should be sufficiently flexible to enable directors to tailor disclosures to best inform investors and the market about the company's activities. To the extent that there is a significant degree of subjectivity involved in the preparation of the information disclosures the need to achieve an appropriate balance between subjectivity and verifiability is important to reduce the risk of inaccurate and/or potentially misleading reporting. Imposing a 'one size fits all' approach to disclosure is likely to impose unnecessary costs on companies and overburden investors with information much of which will be irrelevant and immaterial to their requirements. The G100 does not believe that increased prescription will lead to providing investors with relevant and material information.
The G100 considers that consistency between the ASX disclosures and those of the JORC Code is highly desirable in order to avoid duplication of activity and conflicting requirements.
The G100 believes that disclosures of exploration results should be sufficient to enable investors and the market to make an informed judgment on the company's exploration results. The granularity of the disclosures made should be a matter determined by the directors rather than the detail of the disclosures being mandated.
The G100 supports the current disclosure arrangements by companies of exploration targets. In view of the substantial differences in approach between companies it is suggested the existing requirements of Clause 18 of the JORC Code be amended to clarify what is expected to comply with it. Additional disclosures will not, of themselves, necessarily address the sources of the present non-compliance.
The G100 considers that the introduction of an 'if not, why not' reporting requirement for the criteria identified in Table 1 of the JORC Code (Option C) is preferable to other proposed approaches. However, such an approach should be based on the materiality of the disclosure and mechanisms to avoid the disclosure of non-material information rather than directors having to explain why the information is not material.
The G100 does not support the proposals in respect of the disclosure of production targets which are likely to involve the disclosure of commercially sensitive information which would competitively disadvantage companies.
However, we consider that where a company is disclosing production targets that should not be based solely on the existence of inferred mineral resources and exploration targets. Basing production targets on such information which has a high degree of uncertainty is potentially misleading to investors even with the inclusion of a cautionary statement. We consider that these issues are best addressed by a change in the listing rules rather than being incorporated in the JORC Code. We note that the directors have responsibility for signing-off on production targets and further, the competent persons, referred to in the proposals, are not qualified to do so.
The G100 supports the reconciliation of opening and closing amounts. However, the extent of the detail provided should be a matter for the company to determine.
The G100 broadly supports the adoption of SPE-PRMS as a basis for reporting by oil and gas companies as a means of achieving enhanced consistency of reporting for these companies. However, the G100 has concerns about the potential disclosure of commercially sensitive information which may be prejudicial to the company and result in it being commercially disadvantaged. This arises in disclosures relating to base assumptions in respect of prices, costs, contractual arrangements, proprietary technologies etc. In many of these situations an appropriate narrative disclosure to provide investors with the context and comfort about the company's decisions would be preferable to requiring specific quantitative disclosures.
As with concerns about the volume and detail required under Accounting Standards the G100 believes there is a need to ensure that disclosures are relevant to investor decisions and are not excessive which inhibits achieving the objective of informing investors.
Standardised definitions: The G100 supports the use of SPE-PRMS as a basis for estimating and reporting petroleum reserves and resources. However, balance needs to be achieved between reporting specific information about assumptions etc and commercial confidentiality. The G100 considers that narrative description based on independent verification, when taken in conjunction with other disclosures, should be sufficient.
Annual reserves and reporting: The G100 supports mandatory reporting of IP and 2P reserves with reporting of 3P reserves and contingent resources being at the discretion of the company. While a reconciliation of opening and closing amounts is supported the G100 believes that the extent of the detail should be a matter for the company to determine.
Drilling and exploration: The G100 supports the disclosure of factual information about the initial drilling process. We believe that any disclosure of interpretive information relating to factors which may change significantly and be subject to ongoing revision should be accompanied by cautionary statements.
Key assumptions: The G100 is concerned that the disclosure of key economic assumptions used to determine reserve estimates etc exposes the company to competitive disadvantage and the risks associated with disclosing commercially sensitive information.
It is suggested that investors need comfort that the commercial and technical assumptions on which reserve and resource estimates are based are robust and reasonable and satisfy independent verification.
Standardised measure: The G100 does not support the disclosure of a standardised measure similar to that required by the SEC which relies on current prices and a specified discount rate. The information reported is an artifice which does not reflect or take account of the company's view of future economic conditions and its view of reserves and resources.
Production targets: The G100 considers that such information is commercially sensitive and its disclosure is likely to commercially disadvantage the company. The extent and nature of such disclosures should be a matter for directors to determine.
Evaluator qualifications: The G100 supports the implementation of measures to ensure appropriately qualified and experienced persons are undertaking evaluations. In view of the reliance on the views of the evaluator in the market and the need for public confidence in the disclosures, it is essential that the person's qualifications and experience are of a high order.
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