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 conversion of proved undeveloped 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 PUDs 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 to include all of the information required by Item 1202(a)(8) of Reg S-K.


  • 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. 
  • Regarding acreage data and disclosure of acres expiring, are there any proved undeveloped reserves scheduled to be drilled after lease expiration? 
  • 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; 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.
  • The disclosure characterizes restructuring charges and impact of foreign currency translation as unusual, though these items appear to be recurring. Please revise your disclosures as appropriate as Item 10(e) prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years.
  • 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.

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.
  • The sufficiency of disclosure related to non-recurring fair value measurements, such as impairments.

Certain of the fair value disclosure requirements, and consequently the nature of the SEC staff's comments may be impacted by ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements, which can be early adopted.


  • 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.

Business combinations

Business combinations 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;
  • The completeness of disclosures when the purchase price allocation is preliminary; 
  • Why the registrant omitted the pro forma financial information 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.


  • Tell us how you determined the fair value of the significant intangible assets acquired, including the significant assumptions utilized.
  • You disclose that the purchase price allocation for the acquisition is preliminary. Please disclose the information required by ASC 805-20-50-4A.
  • Please tell us why you did not include pro forma financial information reflecting the acquisition, as required by ASC 805-10-50-2(h).
  • It does not appear to us that the pro forma adjustment is directly attributable to the transaction. Please revise your pro forma financial statements to remove this adjustment or tell us how this adjustment complies with Article 11-02(b)(6).

Fixed assets

The SEC staff's comments around fixed assets primarily related to the accounting for impairments, including the assessment of whether an impairment analysis was necessary. The SEC staff has focused on the quality of the disclosure of the judgments and estimates involved, frequently commenting on:

  • At risk assets or asset groups, including the level of uncertainty and sensitivity of key assumptions;
  • The qualitative and quantitative factors that support impairment test conclusions, including the timing of when the impairment was recognized; and
  • Whether economic and market conditions and operating losses at the segment level should have triggered an interim impairment analysis.

  • Expand your disclosure to discuss the degree of uncertainty associated with the key assumptions used in evaluating asset recoverability and identify potential events and/or changes in circumstances which would reasonably be expected to negatively affect these key assumptions.
  • Describe for us, in reasonable detail, the material facts, circumstances and assumptions you considered in determining the amount and timing of the impairment charge recorded in the fourth quarter.
  • Please tell us if you performed an impairment analysis of the Asset Group during the first quarter, and if so, please tell us the results of the analysis. If you did not perform an impairment analysis, please explain to us why you do not believe such an analysis was necessary.

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;
  • 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.

  • In future filings, please provide additional information about the components of operating expenses, such as quantifying the components and the factors driving the increase and the extent to which you expect this trend to continue.
  • To the extent any of your reporting units have estimated fair values that are not substantially in excess of their carrying values, please provide the following:
    • Amount of goodwill allocated to the reporting unit;
    • Description of the methods and key assumptions used;
    • Discussion of the degree of uncertainty associated with the key assumptions; and
    • Description of events or changes in circumstances that could reasonably be expected to negatively affect the assumptions.
  • Revise future filings to disclose the amount of cash and cash equivalents held by foreign subsidiaries and quantify any amounts that would not be available for use in the United States without incurring US income taxes. Provide a discussion of any known trends, demands or uncertainties relating to your liquidity as a result of your policies of indefinitely reinvesting earnings outside the United States.

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. Required disclosures include:

  • 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.

  • Please explain how you concluded you have only one reportable segment. Please address whether Operations A and Operations B represent separate operating segments. Please compare and contrast your operating segments relative to the areas listed in ASC 280-10-50-11(a) to (e). Regarding any differences, tell us why you determined disaggregation was not warranted.
  • 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.
  • We are not able to reconcile your total tangible assets as disclosed to the face of the balance sheet. Please tell us and revise to disclose what is included in the composition of total tangible assets. Please revise your future filings to exclude any intangible assets from this disclosure, as applicable. Refer to ASC 280-10-50-41 and ASC 280-10-55-23.

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. Specifically, the SEC staff has commented on:

  • Disclosures that improperly exclude certain required line items;
  • Outliers or significant changes in amounts included in the disclosure (or why there is no change based on other disclosures in the filing);
  • Underlying data or support for assumptions used in the standardized measure calculation, including the income tax rate and estimated future development costs; and
  • The incorporation of future anticipated abandonment costs and asset retirement obligations in the calculation.

  • Please revise to provide disclosure explaining why future income taxes used to calculate the standardized measure of discounted future net cash flows are $0. 
  • Provide us with an explanation for the change in future development costs used to calculate the standardized measure of discounted future net cash flows considering both recent changes in proved undeveloped reserves and development costs actually incurred during the year. 
  • Your disclosure of the principal sources of change in your standardized measure of discounted future net cash flows includes an adjustment for “Other”. Provide us with a reasonably detailed description of the nature of this adjustment.

Income taxes

Accounting for income taxes requires the application of significant judgment and the use of estimates. The SEC staff has focused on the quality of the disclosures around these judgments and estimates, frequently commenting on:

  • Effective tax rate reconciliations and uncertain tax positions (UTPs), including the nature of the reconciling items and UTPs, the drivers behind significant changes between periods, and whether those changes are expected to impact future periods;
  • Valuation allowances, specifically when no valuation allowance was recorded despite clear negative evidence, when a full valuation allowance was recorded despite cumulative profitability, and the timing of a full or partial valuation allowance release; and
  • The indefinite reinvestment assertion, including the amount of cash held by foreign subsidiaries, the potential tax impact of repatriating undistributed earnings of those subsidiaries, and the facts and circumstances that led to changes in indefinite reinvestment conclusions.

  • In regard to your effective income tax reconciliations, please disclose and more fully explain to us the factors that resulted in significant changes in foreign income taxed at rates other than the US statutory rate and changes in valuation allowances during each period presented.
  • You disclose that you have received tax assessments in excess of established reserves. Please tell us the amount of tax assessments received, the amount of established reserves, and how you determined the amounts accrued. If you believe a material loss in excess of amounts accrued is reasonably possible, please clarify that fact and disclose the potential loss or a range of loss in excess of amounts accrued as required by ASC 450-20-50, or explain why you are unable to provide such an estimate.
  • Your disclosures indicate that you have recorded cumulative losses for the last three years domestically. We further note that you have recognized US Federal NOLs as deferred tax assets without a valuation allowance. Please provide us with your comprehensive analysis of the specific positive and negative evidence management evaluated in arriving at the conclusion that a valuation allowance is not needed.
  • We note your disclosure regarding legal restructuring that resulted in a change in your indefinite reinvestment assertion and a tax benefit. Please provide us with additional details regarding these events including the factors that led to a change in your indefinite reinvestment assertion and whether the tax benefit is expected to be recurring. Additionally, if material disclose the expected impact of the change in your reinvestment assertion on future tax expense and cash flows in MD&A.

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; and
  • The timing of goodwill and intangible asset impairment charges.

  • Please clarify for us if you aggregate multiple components into your reporting units. If so, tell us the components you have aggregated and provide us with your analysis that supports aggregation is appropriate pursuant to ASC 350-20-35-35.
  • Please tell us whether you have any reporting units with material goodwill at risk of failing your goodwill impairment test. For each such reporting unit, please provide the following disclosures:
    • Percentage by which fair value exceeded carrying value as of the date of the most recent test;
    • Amount of goodwill allocated to the reporting unit;
    • Description of the methods and key assumptions used and how the key assumptions were determined;
    • Discussion of the degree of uncertainty associated with the key assumptions. The discussion regarding uncertainty should provide specifics to the extent possible (e.g., the valuation model assumes recovery in a particular business from a downturn within a defined period of time); and
    • Description of the potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.
  • In light of the current year interim period results of your reportable segment, which appear to be negatively impacted by the referenced business unit, management changes, and a shift in the primary focus of the business unit, please help us further understand how you determined that none of the impairment indicators outlined in ASC 350-20-35-3 existed in the current year interim period.

Contact us

Michael (Casey) A. Herman

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

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