Two consultation papers affecting the oil and mining industries

The two consultation papers are the following:

1. Proposed amendments to the Prospectus rules for “mineral companies”, published by The Committee Of European Securities Regulators (“CESR”)
2. Discussion paper on an accounting standard for Extractive Activities, published by the International Accounting Standards Board (“IASB”)

CESR - new prospectus rules

CESR is proposing new disclosure rules for what is defined as a “mineral company”, to replace previous requirements.

In short the proposed rules address – among other issues - what should now be considered as a “mineral company”, the content of the competent persons report (“CPR”) and the qualifications of the competent person, that such a CPR report should only be required at the time of an IPO (with some exceptions), that the previous requirement for a detailed cash flow forecast accompanied by an accountant’s opinion is disproportionately onerous and does not provide useful information and might be dropped. The new rules propose that pure exploration companies (with no intention to start production/mining) should also be considered as “mineral companies”, and therefore have to adhere to the proposed requirements. The proposed rules set out a list of specific classification standards that can be used (like “JORC”, “PRMS”, “the Norwegian Petroleum Directorate classification systems” and others).

For the full set of proposed amendments please see the following link: http://www.cesr-eu.org/index.php?page=consultation_details&id=163.

Companies and other involved parties can contribute with comments, but the deadline is approaching soon: 15 July 2010.

Oslo Børs has been a major contributor to the work leading up to the new proposed rules.

IASB – the outline of an accounting standard covering the “Extractive industries”

IASB has circulated a discussion paper on a new accounting standard for “extractive activities” (i.e. companies involved in extracting minerals, oil and natural gas). The discussion paper does not propose detailed new rules as per today, but sets out the direction of possible new accounting policies. These policies will presumably at some point materialize in a new International Financial Reporting Standard (IFRS).

A research team comprising members of the Australian, Canadian, Norwegian and South African accounting standard-setters have analysed and discussed accounting for extractive activities with a wide range of stakeholders in order to identify a possible approach for a standard on the accounting for extractive activities. (The discussion paper only contains the views of the project team – it does not represent the views of the IAS Board). IASB has so far not had any comprehensive accounting standard covering the oil and mining sectors.

In short, the IASB discussion paper suggests that the scope of an IFRS covering extractive activities should include only upstream activities for minerals, oil and natural gas, and that there should be a single accounting and disclosure model that applies to extractive activities in both the mining industry and the oil and gas industry.

Furthermore, the paper proposes that the mineral reserve and resource definitions established by the Committee for Mineral Reserves International Reporting Standards (“CRIRSCO”) and the oil and gas reserve and resource definitions established by the Society of Petroleum Engineers (SPE - in conjunction with other industry bodies) should be used in an IFRS for extractive activities.

Finally, the paper discusses what constitutes an “asset” (i.e. in contrast to what should be expensed), and that assets should be measured at historical cost and depreciated in line with current practices. Detailed additional disclosures are also discussed, as an alternative to fair value/current value. It should be noted that the discussion paper is not recommending the use of any fair value/current value of oil/mining assets in the balance sheet.

For this discussion paper (deadline for contributions 30 July) please see the following link: http://www.iasb.org/Current+Projects/IASB+Projects/Extractive+Activities/Summary.htm

While the proposed new prospectus rules might come into effect in the near future, the proposed accounting policies for extractive activities are at a much more preliminary stage, and might first result in actual accounting rules by around 2015.