Valuing the great shale play: Applying proper fair value accounting to acquired shale gas reserves.

Once considered an unconventional resource, shale gas today is viewed by many as an important component of the domestic energy portfolio. Companies eager to join in the "shale rush" should take steps to make sure that acquired reserves are properly fair valued for financial reporting purposes.

Companies seeking to acquire domestic shale reserves must be aware of fair value reporting guidelines under US Generally Accepted Accounting Practices (GAAP) that can have a significant impact on how an acquisition is booked. Given the chasm between strategic value and fair value, it is critical that the deal team and the financial reporting and tax teams work together from the beginning of negotiations to avoid significant value adjustments after close. In addition, chief financial officers and controllers must ensure that the proper processes are in place to accurately measure and report the company’s acquired assets in accordance with GAAP.