Reserves are always part of the balance sheet which is why the assets go up and down with the price of oil sometimes creating a large non-cash loss in the statements. They are probable, provable, or proven and are the basis of most loans of such companies. There is no fraud. From the Oil Accounting handbook:
Asset Impairment in Financial Statements – This year's reserves reports will require many oil and gas companies to conduct an impairment review of their assets when preparing financial statements. For some companies, assets will need to be written down on the balance sheet and an impairment charge recognized in the income statement, perhaps in magnitude sufficient to result in a large non-cash loss.
•Management's Discussion and Analysis – The oil price collapse will require energy companies to think carefully when drafting the liquidity and capital resources sections of their MD&A. Cash flow will be restrained for an undeterminable period. The availability of additional equity will be restricted for most companies and, for many, the continued availability of bank financing will change for the worse.
•Reserves Based Credit Facilities – Many upstream non-investment grade oil and gas companies rely on reserves based credit facilities as their main (and sometimes their only) source of debt within the company's capital structure. Borrowing availability under those credit facilities is likely to be adversely impacted by the drop in oil prices.
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