SEC comment letter trends for energy, utilities and mining companies

The SEC Division of Corporation Finance's filing review process is a key function utilized by the SEC staff to monitor the critical accounting and disclosure decisions applied by registrants. Our analysis of SEC comment letters identifies the frequency of topical areas addressed by the SEC staff and how their focus areas changed over time. In addition to providing our insights on the nature of the SEC staff comments, we provide sample text from the SEC staff’s comments and links to where you can learn more about the accounting and disclosure requirements addressed in each topical area.

Oil, gas and mining reserves

The SEC staff’s comments around oil, gas, and mining reserves continue to focus on proved undeveloped (PUD) reserves and the use of third-party reserve reports. Specifically, the SEC staff frequently ask for additional information on:

  • The planned timing for the conversion of PUD reserves in regard to the Regulation S-X requirement that all PUD reserves be converted within five years. Additionally, the SEC has focused on conversion rates and historical capital expenditures. Once this information is provided, the SEC staff may then ask registrants to explain why they believe such reserves should continue to qualify as PUD when, based on the registrant’s information, development within five years appears unlikely; and

  • Material changes to PUD reserves, including requesting a roll forward of PUD activity.

The SEC staff has also asked for reserve reports included as an exhibit in the Form 10-K to be refiled when they did not include all of the information required by Item 1202(a)(8) of Regulation S-K (e.g., disclosures of the purpose of the report, the date the report was completed and the assumptions, data, methods and procedures used, including a statement that such assumptions, data, and methods are appropriate for the purpose served by the report).


  • Expand disclosure of undeveloped reserves. Given that the rate of development, if sustained, would not be sufficient to develop your reserves over the next five years, disclose the reasons for the limited progress made and explain how your plans have changed to ensure that your reserve estimates adhere to the criteria in Rule 4-10(a)(31)(ii) of Reg S-X.

  • Tell us the extent to which you have assigned any proved undeveloped reserves to locations which are currently scheduled to be drilled after lease expiration. If there are material quantities of net proved undeveloped reserves relating to such locations, expand your disclosure to identify the number of locations, the related net reserve quantities and the steps which would be necessary to extend the time to the expiration of such leases. Refer to Rule 4-10(a)(26) of Regulation S-X.

  • Expand your disclosure to provide an explanation for the material changes in proved undeveloped reserves that occurred during the year. Your disclosure should reconcile the overall change in net quantities by separately identifying and quantifying the individual changes, including offsetting changes, resulting from such factors as the conversion of proved undeveloped reserves to proved developed reserves, additions due to extensions and discoveries, and additions or reductions due to acquisitions, divestitures and revisions in the previous estimates of reserves. To the extent that two or more unrelated factors contribute to a material change, indicate the net amount attributable to each factor accompanied by a narrative explanation. Your disclosure of revisions in the previous estimates of reserves in particular should identify such factors as changes caused by commodity prices, well performance, unsuccessful and/or uneconomic proved undeveloped locations or the removal of proved undeveloped locations due to changes in a previously adopted development plan. Refer to Item 1203(b) of Regulation S-K.

  • The reserve report that you have filed does not include certain information required by Item 1202(a)(8) of Regulation S-K. Please obtain and file a revised report that includes the information necessary in order to satisfy your filing obligations.

Non-GAAP measures

Non-GAAP financial measures result in frequent comments regarding compliance with Item 10(e) of Regulation S-K and the related compliance and disclosure interpretations, sometimes resulting in requests to remove or substantially modify non-GAAP metrics. Focus areas have included:

  • Presentation with equal or greater prominence of the most directly comparable GAAP financial measure; 

  • Reconciliation to the most comparable GAAP financial measure;

  • Appropriateness of adjustments to eliminate or smooth items identified as non-recurring, infrequent or unusual; 

  • Use of individually tailored accounting principles; and 

  • Disclosure of why management believes the non-GAAP presentation provides useful information to investors regarding the financial condition or results of operations of the registrant.


  • You disclose non-GAAP measures without presenting the comparable GAAP measures with equal or greater prominence. Please ensure any discussion regarding non-GAAP measures is preceded by an equal or more prominent discussion of the comparable GAAP measure.

  • Please include a reconciliation of core earnings that begins with the most directly comparable GAAP measure. Your revised reconciliation should provide disaggregated disclosure of all the adjustments necessary to arrive at core earnings from the most directly comparable GAAP measure.

  • Your current disclosure discusses management’s use, but not how the presentation of the measure is useful to investors. Please revise your disclosure to include a discussion of investor’s use of these measures. Excluding amortization of acquired intangible assets may result in non-GAAP measures that are based on individually tailored accounting principles. Please tell us how you considered Question 100.04 of the Non-GAAP C&DIs and why you believe these measures are useful to investors.

Oil and gas industry-specific disclosures

ASC 932-235-50 provides guidance on calculating and disclosing the standardized measure for discounted future net cash flows, and the changes in such standardized measure. This guidance also requires the presentation of a rollforward of net quantities of an entity’s proved oil and gas reserves, among other disclosures. Specifically, the SEC staff has commented on:

  • Disclosures that improperly exclude certain required line items within the standardized measure;

  • Outliers or significant changes in amounts included in the disclosure of the standardized measure (or why there is no change based on other disclosures in the filing);

  • Disclosures that omit net reserve quantities for proved developed and proved undeveloped reserves; and 

  • Disclosures that do not explain material changes in items presented in the reconciliation of reserve quantities. 


  • Expand your disclosure to provide an explanation of the significant changes related to each line item entry other than production. To the extent that two or more unrelated factors are combined to arrive at the line item figure, your disclosure should separately identify and quantify each individual factor that contributed to a significant change so that the change in net reserves between periods is fully explained. The disclosure relating to revisions in the previous estimates of your reserves should identify such factors as changes caused by commodity prices, well performance, uneconomic proved undeveloped locations or changes resulting from the removal of proved undeveloped locations due to changes in a previously adopted development plan. Refer to FASB ASC 932-235-50-5.

  • We note your disclosure of changes in standardized measure of discounted cash flows includes an adjustment for "Changes in timing and other." Provide us with a description of the nature of this adjustment. Refer to FASB ASC 932-235-50-5 and ASC 932-235-50-36.

  • Please expand your tabular disclosure to include the net quantities of your proved developed reserves and proved undeveloped reserves. Refer to FASB ASC 932-235-50-4 and Example 1 in 932-235-55-2, which requires disclosure of the beginning and the end of the year reserve balances for all periods presented.

  • Expand your disclosure to include reconciliations of the beginning and ending net quantities of your proved reserves for each fiscal year covered by your report to show the extent to which changes are attributable to each category or type of change outlined in FASB ASC 932-235-50-5. You may refer to Example 1 of FASB ASC 932-235-55-2 for an illustration of this disclosure requirement.

Segment reporting

SEC staff frequently question how registrants have identified operating segments and aggregated them into reportable segments, often due to events reported by companies in press releases or Form 8-K disclosures. SEC staff may expect to see changes in segments when the company has disclosed significant acquisitions or dispositions, changes in organizational structure, or changes in key personnel. To resolve segment questions, the SEC staff may request a copy of the reporting package utilized by the chief operating decision maker, or other documents, to evaluate its consistency with management’s reporting conclusions.

The lack of entity-wide information required to be disclosed under ASC 280 has also been highlighted by the SEC staff, Specifically, the SEC staff has focused on the required disclosures of:

  • Revenues from external customers for each group of similar products and services; and

  • Geographic disclosures of revenues from external customers and long-lived assets attributable to the public entity’s country of domicile and individual foreign countries that are material.


  • Given the disclosures about your core products as well as the impact on your gross margin driven by shifts in product mix, please expand your disclosure to include revenue for each group of similar products to comply with FASB ASC 280-10-50-40.

  •  Please tell us in detail how you determined all of your operating segments or brands are properly aggregated into one reportable segment. Please be sure to address each of the aggregation criteria in ASC 280-10-50-11.

  • Please revise future filings to present separately revenues from external customers attributed to your country of domicile. Also, when material, separately disclose the revenues from external customers attributed to an individual foreign country. Refer to ASC 280-10-50-41(a).

Fair value measurement

Fair value measurements often require the application of significant judgment. The SEC staff has focused on the quality of disclosure around those significant judgments and estimates, frequently commenting on:

  • The valuation techniques and key inputs used to determine the fair value for each significant class of asset or liability, whether determined by management or a third party (e.g., independent pricing service).

  • The quantitative information provided for significant unobservable inputs used in Level 3 fair value measurements, including the sensitivity of the fair value measurement to changes in those significant unobservable inputs.


  • You indicate the securities included in Level 2 of the fair value hierarchy are valued utilizing inputs obtained from an independent pricing service. Please tell us what consideration was given to disclosing a description of the valuation techniques and inputs used in the fair value measurements. In addition, tell us what consideration you gave to separately disclosing the valuation techniques and inputs for each class of assets. We refer you to ASC 820-10-50-2 and ASC 820-10-50-2(bbb).

  • Please disclose quantitative information about the significant unobservable inputs used in developing the fair value of your Level 3 assets and liabilities. Also, tell us what consideration was given to providing a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs. Please refer to ASC 820-10-50-2(bbb) and (g).

  • Please tell us how you complied with the non-recurring fair value measurement disclosures related to the impairment charge, as required by ASC 820-10-50-2(a). Also refer to the example of these disclosures at ASC 820-10-55-100.

Management's discussion and analysis

The SEC staff’s comments on management’s discussion and analysis have emphasized the requirements in Item 303 of Regulation S-K and the related disclosure objectives, including a focus on:

  • The discussion and analysis of results of operations, including the description and quantification of unusual or infrequent events or any significant economic changes;

  • Metrics used by management in assessing performance, including how they are calculated and period over period comparisons;

  • Critical accounting estimates, including the judgments made in the application of significant accounting policies, and the likelihood of materially different reported results if different assumptions or conditions were to prevail; and

  • Liquidity and capital resources, including clear discussion of drivers of cash flows and the trends and uncertainties related to meeting known or reasonably likely future cash requirements.


  • If two or more factors contribute to material changes in revenue, please provide disclosure demonstrating the relative magnitude of each factor, such as the percentage or dollar increase in revenue due to onboarding of new customers versus usage from existing customers. In this regard, it appears from your most recent earnings releases that such information is readily available. Refer to Item 303(a)(3)(iii) 303(a)(3)(iii) of Regulation S-K and Section III.D of SEC Release No. 33-6835.

  • Where a material change in a line item is attributed to two or more factors, including any offsetting factors, the contribution of each identified factor should be described in quantified terms, if reasonably practicable. Please revise your disclosures in future filings accordingly. Similar revisions should be considered throughout your results of operations disclosures, such as in your discussion of the change in research and development and selling, general and administrative expenses. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section III.D of SEC Release No. 33-6835.

  • We note your disclosure and quantification of capacity utilization. Please revise to describe how this measure is calculated and expand the discussion to include the underlying reasons for any significant fluctuations in the measure from period-to-period. Refer to Item 303(a)(3) of Regulation S-K.

  • Please provide information for investors to assess the probability of future goodwill impairment charges. For example, please disclose whether your reporting unit is at risk of failing step one of the quantitative impairment test or that the fair value of this reporting unit is substantially in excess of carrying value and is not at risk of failing step one. If the reporting unit is at risk of failing step one, you should disclose:  

    • The percentage by which fair value exceeded carrying value at the date of the most recent step one test;

    • The amount of goodwill allocated to the reporting unit;  

    • A detailed description of the methods and key assumptions used and how the key assumptions were determined; 

    • A discussion of the degree of uncertainty associated with the assumptions; and  

    • A description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions. 

  • Please describe for us the actuarial methods you utilize to estimate your reserve, including significant assumptions and changes therein and why you believe the methods and assumptions provide a reasonable estimate.

  • As it relates to your analysis of cash provided by operating activities, please quantify all variance factors cited pursuant to section 501.04 of staff's Codification of Financial Reporting so that investors may readily understand the magnitude of each. Also, please note citing factors such as operating results and changes in balance sheet items may not provide a sufficient basis to understand how operating cash between comparative periods was affected and varied. In this regard, supplement your analysis with the material drivers underlying the factors cited, as appropriate. Refer to section IV.B.1 of Release No. 33-8350 for guidance.

Business combinations

The accounting for business combinations and the related disclosures are a consistent area of focus for the SEC staff, with frequent comments related to:

  • Purchase price allocations, including questions about how fair value was determined and the key assumptions used; 

  • Why the registrant omitted the pro forma financial information or other disclosures required by ASC 805; and

  • Compliance with the Regulation S-X Article 11 pro forma financial information requirements for significant business combinations disclosed on Form 8-K and in certain registration statements.


  • Please provide more detail regarding the royalty rate for the subject trade name and respective required rates of return used in the relief from royalty calculation. In addition to quantifying the inputs, please tell us how these inputs were determined, if a range of inputs were considered, and the magnitude of the impact on the trade name value if other inputs within the range, if any, had been used.

  • Please disclose a qualitative description of the factors that make up the goodwill recognized in the transaction in accordance with ASC 805-30-50-1(a).

  • We note your business combinations during the year were material in the aggregate to total assets for the current and prior year. Please disclose the following pursuant to ASC 805-10-50- 3 or tell us why you believe you are not required to disclose this information: 

    • the amount of acquisition-related costs, the amount recognized as an expense, and the line item or items in the income statement in which those expenses are recognized;  

    • the amounts of revenue and earnings of the acquiree since the acquisition date included in the consolidated income statement for the reporting period; and

    • the revenue and earnings of the combined entity as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period (supplemental pro forma information).

  • Please tell us how you considered the requirements for pro forma financial information pursuant to Article 11 of Regulation S-X for the sale of your Facilities described in Item 2.01 of Form 8-K.

Consolidation

The SEC staff continues to ask registrants to:

  • Clarify how they determined whether they were or were not the primary beneficiary of a variable interest entity (VIE); and

  • Provide disclosures required by ASC 810 for consolidated entities that were determined to be a VIE.


  • It appears that you have investments in affiliates that are 100% owned and accounted for under the equity method of accounting. Please tell us how you determined you are not required to consolidate these affiliates in accordance with ASC Topic 810. To the extent you have determined you are not the primary beneficiary, please tell us how you arrived at that conclusion.

  • We note that you consolidate your joint venture, which is a variable interest entity in which you are the primary beneficiary. Please provide us with your detailed analysis discussing your basis in consolidating the joint venture, and cite the accounting literature relied upon.

  • We note that substantially all of your consolidated affiliates are considered variable interest entities; however, we do not see where you have provided the disclosures required by ASC 810-10-45-25 and ASC 810-10-50-3. Please advise, or tell us why this information is not required.

Goodwill and other intangibles

The SEC staff has focused on the quality of the disclosure around significant judgments and estimates associated with goodwill and intangible assets, including impairment assessments, frequently commenting on:

  • The identification of reporting units, including factors considered when multiple components have been combined into a single reporting unit due to economic similarities;

  • At risk reporting units, including information about the amount of goodwill and headroom at the reporting unit, discussion of the key assumptions used to determine the reporting unit’s fair value and their associated degrees of uncertainty, and a description of potential events or changes in circumstances that could negatively affect the key assumptions; 

  • Triggering events that may indicate that an interim impairment assessment is necessary; and

  • The timing of goodwill and intangible asset impairment charges.


  • We note your statement that your reporting units with goodwill are equivalent to your operating segments. Please tell us your operating segments and if your operating segments changed during the year. If you have aggregated any of your operating segments when determining your reportable segments, please revise the segment footnote in your financial statements to disclose that operating segments have been aggregated. See ASC 280-10-50-21(a). 

  • Please tell us how you considered the qualitative factors outlined in ASC 350-20-35-3C when performing your goodwill impairment analysis and clarify whether you performed a qualitative or quantitative assessment, or both. Also, tell us whether any of your reporting units are at risk of failing a quantitative analysis and if true, revise your critical accounting policies to disclose:
    • The percentage by which fair value exceeded carrying value as of the date of the most recent test;
    • The amount of goodwill allocated to the reporting unit;
    • A discussion of the degree of uncertainty, which includes specifics to the extent possible, associated with key assumptions used in your analysis; and 
    • A description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.

If you have determined that estimated fair values substantially exceed the carrying values of your reporting units, please disclose such determination. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section V of SEC Release 33-8350.

  • We note your disclosure in your Form 10-K that as of the end of your fiscal year, the fair value of your goodwill exceeded the carrying value by a minimal amount. Your stock price has continued to decline and you recognized operating cash flow losses and operating losses during the first quarter. Additionally, we note significant decreases in total revenues for the first quarter of the current year compared to the prior year. Tell us how you considered whether these trends were considered to be a triggering event for an additional goodwill impairment analysis. Please refer to ASC 350-20-35-30.

Debt, quasi-debt, warrants and equity

Debt, quasi-debt, warrants, and equity securities continue to be sources of restatements and revisions due to errors in the application of the relevant guidance. The accounting for such items often includes critical accounting estimates that require significant judgment. The SEC staff has focused on the transparency and quality of the disclosures around these judgments and estimates, frequently requesting:

  • The registrant’s consideration of conversion and redemption options in determining debt or equity classification;

  • Support for the classification of financing transactions as extinguishments or modifications of debt; and

  • Expanded disclosures of the rights and privileges related to preferred stock and material terms of debt agreements.


  • Please disclose the nature of the redemption features related to the preferred shares and why amounts are not currently redeemable. Additionally, please disclose the features of the preferred shares that lead you to classify amounts as liabilities as opposed to equity.

  • Please tell us your consideration of providing a description of the accounting method used to adjust the redemption amount of the redeemable preferred stock for changes in the redemption value and disclosing (1) the redemption amount of the preferred stock as if it were currently redeemable and (2) the reasons why it is not probable that the preferred stock will become redeemable. Please refer to ASC 480-10-S99-24.

  • Revise future filings to provide all of the disclosures required by paragraphs 50-4 through 50-6 of ASC 470-20 for your convertible debt instruments that may be settled in cash. In this regard, revise to also describe the specific conversion features of each debt arrangement and discuss how the features and the host instrument are accounted for and valued in your financial statements.

  • We note that you extinguished debt plus accrued interest by issuing common shares to a related party. Please tell us whether you applied extinguishment accounting, and if so, please explain to us how you determined the reacquisition price of the debt. Please refer to ASC 470-50-40-2 and 40-3.

  • Please disclose the pertinent rights and privileges of the preferred stock, including dividend and liquidation preferences, participation rights, unusual voting rights and other terms. Please refer to ASC 505-10-50-3 through and 50-5.

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Michael (Casey) A. Herman

Michael (Casey) A. Herman

Energy, Utilities & Mining Co-leader; US Power & Utilities Leader, PwC US

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