Petroleum-Engineering Firm Could Be Liable for Reserve Estimates

05/10/2012

In its 2012 decision in Highland Capital Management v. Ryder Scott Co. and Chesapeake Energy Corp., the Court of Appeals for the First District of Houston reversed a summary judgment for the defendants and held that a petroleum-engineering firm could be liable under the Texas Securities Act (TSA) for providing estimates of oil-and-gas reserves to be included in an oil and gas exploration company’s Securities Exchange Commission (SEC) filings. Under this holding, the providing of “false” estimates of the oil and gas reserves or estimates prepared “with reckless disregard for the truth” could result in liability for aiding both the sellers as well as the issuers of interests in securities. Furthermore, the court held that the engineering firm’s alleged failure to follow SEC guidelines for estimating oil and gas reserves could satisfy the intent required to be an aider and abettor under the TSA.

Excerpted from the American Bar Association Section of Litigation, Energy Litigation News & Developments on May 10, 2012.

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