SEC Company Response from DEVON ENERGY (DVN) — Jun 8, 2006
DEVON ENERGY CORP/DE (DVN) (CIK 0001090012)
Date: June 8, 2006 · CIK: 0001090012 · Accession: 0000950134-06-011289
AI Filing Summary & Sentiment
Reasoning
Referenced dates: May 12, 2006
Letter
Via EDGAR and Attention: Gary Newberry, Division of Corporation Finance Devon Energy Corporation Form 10-K for Fiscal Year Ended December 31, 2005 Filed March 3, 2006 File No. 1-32318
Dear Mr. Schwall:
This letter responds to the staff’s comment letter dated May 12, 2006, regarding Devon Energy Corporation’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006 (File No. 1-32318). Devon’s responses to the staff’s comments are set forth below:
Proved Reserves and Estimated Future Net Revenues, page 18
SEC Comment
1.
We note your disclosure of Pre-tax 10% Present Value (“PV10”) and the related footnote in the table presented. We also note your responses to SEC comments 2 and 3 in your letter to us dated January 14, 2005. In your January letter, you provided example disclosures to be included in your future filings which included a quantitative disclosure of the amount of discounted future taxes that were excluded from your measure PV10. It appears that this disclosure has not been carried forward in your current filing. We believe a quantitative disclosure of the difference between PV10 and the Standardized Measure is necessary for an investor’s understanding of that measure. Please revise your disclosure to include a quantitative reconciliation of the difference between your measure of PV10 and the Standardized Measure. Refer to Regulation S-K Item 10(e)(1)(i)(B).
U.S. Securities and Exchange Commission
June 8, 2006
Page 2
Response
Subsequent to our letter of January 14, 2005 and prior to the filing of our 2005 Form 10-K, we revised the locations of the PV 10% and standardized measure figures as compared to where they were disclosed in the 2003 Form 10-K that was the subject of our prior response. Following these disclosure revisions, we believed that our existing disclosures were adequate with regard to the difference between the two measures. However, with the addition of the following three sentences to the beginning of the second paragraph of footnote 2 on page 19 of our 2005 Form 10-K, all of the disclosures referenced in our January 14, 2005 letter would be included in our current filing:
The present value of after-tax future net revenues discounted at 10% per annum (“standardized measure”) was $23.6 billion at the end of 2005. Included as part of standardized measure were discounted future income taxes of $12.0 billion. Excluding these taxes, the present value (“pre-tax 10% present value”) was $35.6 billion.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment of our 2005 Form 10-K.
Management Discussion and Analysis of Financial Condition and Results of Operations, page
SEC Comment
2.
Please revise your discussion to provide a separately captioned section discussing off-balance sheet arrangements as required by Regulation S-K Item 303 (a)(4). If you have no such arrangements, amend your filing to disclose this fact.
Response
As of December 31, 2005, Devon had no off-balance sheet arrangements as defined by Item 303 (a)(4). However, we do not find in Item 303 (a)(4) any requirement to specifically disclose the lack of such arrangements and do not believe that such disclosure would be material to investors.
Engineering Comments
Risk Factors, page 13
SEC Comment
3.
Reconcile the statement that reserves estimates “may change substantially over time” with the concept of “reasonable certainty.”
Response
Reasonable certainty has been described in SEC guidance as meaning that reserves are much more likely to increase (positive revision) than to decrease (negative revision) as more data is obtained over the producing life of the property. Estimates of proved reserves are known to include certain levels of imprecision because of the uncertainty in the parameters that are included in the calculation of reserve estimates. This uncertainty applies to all estimation techniques, including those based on volumetric parameters, performance trends, and material balance and reservoir simulation with history match. As production and pressure data are gathered over the life of the reservoir, reserves are almost certain to change, and in some cases change substantially.
Another potentially significant uncertainty inherent in the estimates of proved reserves is economic uncertainty, which can be positive or negative over time. The economic uncertainties include both product price uncertainty and political uncertainties, both domestically and internationally. As examples of price uncertainties, note on page 118 the downward revisions to our estimates of International proved reserves that were attributed to changes in prices. As noted in the reconciliations on page 118, our proved International reserves were revised downward by 14% in 2004 and by 8% in 2005 due solely to changes in prices from one year-end to the next.
U.S. Securities and Exchange Commission
June 8, 2006
Page 3
Our comments in the risk factor discussion on page 13 are intended to explain the inherent risks and uncertainties in finding, exploiting and producing oil and gas reserves. We do not believe that our comments conflict with the concept of “reasonable certainty.”
Properties, page 16
Proved Reserves and Estimated Future Net Revenue, page 16
SEC Comment
4.
Revise the document to include the definition of proved reserves as found in Rule 4-10(a) of Regulation S-X.
Response
We will add the following disclosure to page 16:
The SEC defines proved oil and gas reserves as the estimated quantities of crude oil, natural gas and NGLs which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment of our 2005 Form 10-K.
SEC Comment
5.
Tell us if the independent engineers that prepared and audited your proved reserves did their own geological mapping for the reserve work they performed.
Response
In some cases, where maps are required to estimate reserves, independent engineers prepare their own maps completely from raw data. However, in most cases, independent engineers begin with company maps and revise them to reflect their interpretation of structure. In many cases, net pay isopach maps are drawn by the independent engineers to reflect their interpretation of the distribution of the reservoir volume. In all cases, the maps used by independent engineers are prepared, accepted or modified as necessary in their opinion and are intended to be, in their opinion, accurate representations of the subsurface using the data as known at the time.
SEC Comment
6.
You state that in the past five years your annual performance related revisions have averaged approximately 1% of the previous year’s estimate. According to FASB 69 paragraph 30, revisions should include reserve additions from development drilling. Please advise us if you include these as revisions.
Response
Paragraph 30 of FASB 69 deals with the disclosure of the standardized measure of discounted future net cash flows. Therefore, we have assumed that you intended to reference paragraph 11(a) of FASB 69, and the balance of our response is based on this assumption.
Paragraph 11(a) (Revisions of Previous Estimates) states that “revisions represent changes in previous estimates of proved reserves, either upward or downward, resulting from new information (except for an increase in proved acreage) normally obtained from development drilling and production history or resulting from a change in economic factors.” When reserves related to development drilling can be initially recorded as proved undeveloped
U.S. Securities and Exchange Commission
June 8, 2006
Page 4
reserves, changes to the booked proved undeveloped reserves after the well is drilled result in revisions to proved reserves. We believe that reserves added from locations which had not previously been recorded in the booked proved reserves and that will require the expenditure of future capital to actually develop such reserves, are properly recognized as “extensions and discoveries” pursuant to paragraph 11(d)(1), as these wells extend the proved acreage of the field, even though that acreage may lie between existing wells.
Prior to the recognition of reserves related to locations not categorized as proved undeveloped, our total recorded proved reserves would not include any estimate of such reserves nor a location related to the recovery of such reserves. Therefore, it appears contradictory to characterize the initial recording of proved undeveloped reserves as revisions to “previous estimates” when there were no such previous estimates recorded.
One of our goals is to book the initial estimate of extended or discovered proved reserves as accurately as possible. We believe the percentage of yearly revisions unrelated to price changes is a useful indicator to our investors of the reliability of our procedures that are followed in initially recording proved reserves. If new proved undeveloped reserves from future development drilling were to be included as “revisions to previous estimates,” it could lead to quantities shown as “revisions” that could be a significant percentage of the prior year estimates, and thus could lead to a erroneous perception that the company’s methods of originally estimating its proved reserves are unreliable.
Operation of Properties, page 21
SEC Comment
7.
Instruction 3 to Item 102 of Regulation S-K requires material disclosure such as reserves, production and interest about significant properties. However, your filing does not appear to contain all of the necessary disclosures for the properties you discuss. Please revise as necessary.
Response
Instruction 3 to Item 102 of Regulation S-K requires the disclosure of material information as to production, reserves, locations, development and the nature of the registrant’s interest. The table on page 21 discloses reserves and value for each of our main geographic regions of operations. More specific information regarding the locations, development and nature of our interest in the primary fields within each of these main geographic regions is provided on pages 22 through 25. It appears to us that the only information mentioned in Instruction 3 that is missing is production data related to the main geographic regions of operations.
Accordingly, we propose the addition of a table on page 21 which will disclose 2005 production volumes of oil, gas and NGLs for each of the Permian Basin, Mid-Continent, Rocky Mountain, Gulf Coast Onshore, Gulf Offshore, Canada and International geographic regions.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment of our 2005 Form 10-K.
We do not consider any of our individual properties to be of “major significance,” therefore the information described in Instruction 3(A) and 3(B) is not applicable.
SEC Comment
8.
Tell us if you include any reserves based on plant ownership rather than leasehold interest. If so, revise your document to disclose these separately from the other reserves, if material.
Response
All of our reserves are attributable to leasehold interests.
U.S. Securities and Exchange Commission
June 8, 2006
Page 5
SEC Comment
9.
Advise us if you will produce all the reserves from your PSC’s prior to the end of the contract terms.
Response
All reserves booked under production sharing contracts are expected to be produced within the limits of the corresponding contract terms.
International, page 24
SEC Comment
10.
You state that you estimate the ACG field in Azerbaijan contains over 5 billion barrels of gross proved oil reserves and that you have a 5.6% working interest. SEC rules only allow you to disclose reserves that are net to your interest. Also, as you have a 5.6% interest this would indicate that your net reserves are approximately 245 million barrels. However, you have only disclosed a total of 244 million barrels for proved reserves for your entire international operations. Please reconcile these apparent inconsistencies and revise your document as necessary.
Response
The calculation in your comment appears to assign a 12.5% royalty to the ACG field in order to arrive at the estimated 245 million barrels net to Devon’s interest. The ACG contract is a rate-of-return contract that results in a royalty rate considerably more than 12.5%. In fact, the year-end 2005 effective royalty rate was over 70%. Accordingly, Devon’s net reserves in the ACG field at year-end 2005 were approximately 85.8 million barrels.
We propose to delete the sentence on page 25 that refers to the five billion barrels of gross reserves. In its place we will add the following statement:
Devon’s net proved reserves in the ACG field at the end of 2005 totaled approximately 85.8 million barrels.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment of our 2005 Form 10-K.
Selected Financial Data, page 28
Operating Results, page 28
SEC Comment
11.
Tell us if the average prices shown here include the effects of hedging. If so, you should revise the document to note this in the filing.
Response
Yes, the average prices include the effects of hedging. As disclosed in footnote 2 on page 29, “The preceding price data includes the effect of derivative financial instruments and fixed-price physical delivery contracts.”
SEC Comment
12.
Tell us if the average production and operating expenses include production taxes. If not, you should revise your document to include these.
U.S. Securities and Exchange Commission
June 8, 2006
Page 6
Response
Yes, the average production and operating expenses include production taxes. Please note the table on page 36, which indicates that the amounts of production and operating expenses per Boe include lease operating expenses and production taxes.
Results of Operations, page 32
SEC Comment
13.
You disclose, before the effect of hedging, your 2005 average oil price to be $48.49 per barrel. However, according to the EIA website, the average 2005 oil price of Brent and WTI was $54.60 and $56.58 per barrel, respectively. Please reconcile to us your reported average oil prices to us with those on the EIA website.
Response
WTI and Brent are probably the two most commonly referenced types of crude oil. However, as the EIA website also points out, there are about 161 different internationally traded crude oils that vary in terms of characteristics, quality and market penetration. Crude oil is referred to as either “light” or “heavy” depending on its API gravity, with light crude being those with the higher API gravity. Crude oil is also referred to as either “sweet” or “sour” depending on its sulfur content, with sweet crude containing lower levels of sulfur. Both WTI and Brent are characterized as light sweet crude. Light sweet crude demands the highest market price of all the various grades of crude. As such, WTI and Brent are used as “reference prices,” but a significant portion of world oil production is of lower quality than W
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[DEVON LOGO]
Brian J. Jennings
Senior Vice President and
Chief Financial Officer
Devon Energy Corporation
20 North Broadway
Oklahoma City, Oklahoma 73102-8260
Direct: 405/552-7838
Direct Fax: 405/552-8109
June 8, 2006
Via EDGAR and
Facsimile No. 202-772-9368
Attention: Gary Newberry,
Division of Corporation Finance
H. Roger Schwall
Assistant Director
U. S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7010
Re:
Devon Energy Corporation
Form 10-K for Fiscal Year Ended December 31, 2005
Filed March 3, 2006
File No. 1-32318
Dear Mr. Schwall:
This letter responds to the staff’s comment letter dated May 12, 2006, regarding Devon Energy
Corporation’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006 (File No.
1-32318). Devon’s responses to the staff’s comments are set forth below:
Proved Reserves and Estimated Future Net Revenues, page 18
SEC Comment
1.
We note your disclosure of Pre-tax 10% Present Value (“PV10”) and the related footnote in the
table presented. We also note your responses to SEC comments 2 and 3 in your letter to us
dated January 14, 2005. In your January letter, you provided example disclosures to be
included in your future filings which included a quantitative disclosure of the amount of
discounted future taxes that were excluded from your measure PV10. It appears that this
disclosure has not been carried forward in your current filing. We believe a quantitative
disclosure of the difference between PV10 and the Standardized Measure is necessary for an
investor’s understanding of that measure. Please revise your disclosure to include a
quantitative reconciliation of the difference between your measure of PV10 and the
Standardized Measure. Refer to Regulation S-K Item 10(e)(1)(i)(B).
U.S. Securities and Exchange Commission
June 8, 2006
Page 2
Response
Subsequent to our letter of January 14, 2005 and prior to the filing of our 2005 Form 10-K, we
revised the locations of the PV 10% and standardized measure figures as compared to where they were
disclosed in the 2003 Form 10-K that was the subject of our prior response. Following these
disclosure revisions, we believed that our existing disclosures were adequate with regard to the
difference between the two measures. However, with the addition of the following three sentences
to the beginning of the second paragraph of footnote 2 on page 19 of our 2005 Form 10-K, all of the
disclosures referenced in our January 14, 2005 letter would be included in our current filing:
The present value of after-tax future net revenues discounted at 10% per annum (“standardized
measure”) was $23.6 billion at the end of 2005. Included as part of standardized measure were
discounted future income taxes of $12.0 billion. Excluding these taxes, the present value
(“pre-tax 10% present value”) was $35.6 billion.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment
of our 2005 Form 10-K.
Management Discussion and Analysis of Financial Condition and Results of Operations, page
36
SEC Comment
2.
Please revise your discussion to provide a separately captioned section discussing
off-balance sheet arrangements as required by Regulation S-K Item 303 (a)(4). If you have no
such arrangements, amend your filing to disclose this fact.
Response
As of December 31, 2005, Devon had no off-balance sheet arrangements as defined by Item 303 (a)(4).
However, we do not find in Item 303 (a)(4) any requirement to specifically disclose the lack of
such arrangements and do not believe that such disclosure would be material to investors.
Engineering Comments
Risk Factors, page 13
SEC Comment
3.
Reconcile the statement that reserves estimates “may change substantially over time” with the
concept of “reasonable certainty.”
Response
Reasonable certainty has been described in SEC guidance as meaning that reserves are much more
likely to increase (positive revision) than to decrease (negative revision) as more data is
obtained over the producing life of the property. Estimates of proved reserves are known to
include certain levels of imprecision because of the uncertainty in the parameters that are
included in the calculation of reserve estimates. This uncertainty applies to all estimation
techniques, including those based on volumetric parameters, performance trends, and material
balance and reservoir simulation with history match. As production and pressure data are gathered
over the life of the reservoir, reserves are almost certain to change, and in some cases change
substantially.
Another potentially significant uncertainty inherent in the estimates of proved reserves is
economic uncertainty, which can be positive or negative over time. The economic uncertainties
include both product price uncertainty and political uncertainties, both domestically and
internationally. As examples of price uncertainties, note on page 118 the downward revisions to
our estimates of International proved reserves that were attributed to changes in prices. As noted
in the reconciliations on page 118, our proved International reserves were revised downward by 14%
in 2004 and by 8% in 2005 due solely to changes in prices from one year-end to the next.
U.S. Securities and Exchange Commission
June 8, 2006
Page 3
Our comments in the risk factor discussion on page 13 are intended to explain the inherent risks
and uncertainties in finding, exploiting and producing oil and gas reserves. We do not believe
that our comments conflict with the concept of “reasonable certainty.”
Properties, page 16
Proved Reserves and Estimated Future Net Revenue, page 16
SEC Comment
4.
Revise the document to include the definition of proved reserves as found in Rule 4-10(a) of
Regulation S-X.
Response
We will add the following disclosure to page 16:
The SEC defines proved oil and gas reserves as the estimated quantities of crude oil, natural
gas and NGLs which geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment
of our 2005 Form 10-K.
SEC Comment
5.
Tell us if the independent engineers that prepared and audited your proved reserves did their
own geological mapping for the reserve work they performed.
Response
In some cases, where maps are required to estimate reserves, independent engineers prepare their
own maps completely from raw data. However, in most cases, independent engineers begin with
company maps and revise them to reflect their interpretation of structure. In many cases, net pay
isopach maps are drawn by the independent engineers to reflect their interpretation of the
distribution of the reservoir volume. In all cases, the maps used by independent engineers are
prepared, accepted or modified as necessary in their opinion and are intended to be, in their
opinion, accurate representations of the subsurface using the data as known at the time.
SEC Comment
6.
You state that in the past five years your annual performance related revisions have averaged
approximately 1% of the previous year’s estimate. According to FASB 69 paragraph 30,
revisions should include reserve additions from development drilling. Please advise us if you
include these as revisions.
Response
Paragraph 30 of FASB 69 deals with the disclosure of the standardized measure of discounted future
net cash flows. Therefore, we have assumed that you intended to reference paragraph 11(a) of FASB
69, and the balance of our response is based on this assumption.
Paragraph 11(a) (Revisions of Previous Estimates) states that “revisions represent changes in
previous estimates of proved reserves, either upward or downward, resulting from new information
(except for an increase in proved acreage) normally obtained from development drilling and
production history or resulting from a change in economic factors.” When reserves related to
development drilling can be initially recorded as proved undeveloped
U.S. Securities and Exchange Commission
June 8, 2006
Page 4
reserves, changes to the booked proved undeveloped reserves after the well is drilled result in
revisions to proved reserves. We believe that reserves added from locations which had not
previously been recorded in the booked proved reserves and that will require the expenditure of
future capital to actually develop such reserves, are properly recognized as “extensions and
discoveries” pursuant to paragraph 11(d)(1), as these wells extend the proved acreage of the field,
even though that acreage may lie between existing wells.
Prior to the recognition of reserves related to locations not categorized as proved undeveloped,
our total recorded proved reserves would not include any estimate of such reserves nor a location
related to the recovery of such reserves. Therefore, it appears contradictory to characterize the
initial recording of proved undeveloped reserves as revisions to “previous estimates” when there
were no such previous estimates recorded.
One of our goals is to book the initial estimate of extended or discovered proved reserves as
accurately as possible. We believe the percentage of yearly revisions unrelated to price changes
is a useful indicator to our investors of the reliability of our procedures that are followed in
initially recording proved reserves. If new proved undeveloped reserves from future development
drilling were to be included as “revisions to previous estimates,” it could lead to quantities
shown as “revisions” that could be a significant percentage of the prior year estimates, and thus
could lead to a erroneous perception that the company’s methods of originally estimating its proved
reserves are unreliable.
Operation of Properties, page 21
SEC Comment
7.
Instruction 3 to Item 102 of Regulation S-K requires material disclosure such as reserves,
production and interest about significant properties. However, your filing does not appear to
contain all of the necessary disclosures for the properties you discuss. Please revise as
necessary.
Response
Instruction 3 to Item 102 of Regulation S-K requires the disclosure of material information as to
production, reserves, locations, development and the nature of the registrant’s interest. The
table on page 21 discloses reserves and value for each of our main geographic regions of
operations. More specific information regarding the locations, development and nature of our
interest in the primary fields within each of these main geographic regions is provided on pages 22
through 25. It appears to us that the only information mentioned in Instruction 3 that is missing
is production data related to the main geographic regions of operations.
Accordingly, we propose the addition of a table on page 21 which will disclose 2005 production
volumes of oil, gas and NGLs for each of the Permian Basin, Mid-Continent, Rocky Mountain, Gulf
Coast Onshore, Gulf Offshore, Canada and International geographic regions.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment
of our 2005 Form 10-K.
We do not consider any of our individual properties to be of “major significance,” therefore the
information described in Instruction 3(A) and 3(B) is not applicable.
SEC Comment
8.
Tell us if you include any reserves based on plant ownership rather than leasehold interest.
If so, revise your document to disclose these separately from the other reserves, if material.
Response
All of our reserves are attributable to leasehold interests.
U.S. Securities and Exchange Commission
June 8, 2006
Page 5
SEC Comment
9.
Advise us if you will produce all the reserves from your PSC’s prior to the end of the
contract terms.
Response
All reserves booked under production sharing contracts are expected to be produced within the
limits of the corresponding contract terms.
International, page 24
SEC Comment
10.
You state that you estimate the ACG field in Azerbaijan contains over 5 billion barrels of
gross proved oil reserves and that you have a 5.6% working interest. SEC rules only allow you
to disclose reserves that are net to your interest. Also, as you have a 5.6% interest this
would indicate that your net reserves are approximately 245 million barrels. However, you
have only disclosed a total of 244 million barrels for proved reserves for your entire
international operations. Please reconcile these apparent inconsistencies and revise your
document as necessary.
Response
The calculation in your comment appears to assign a 12.5% royalty to the ACG field in order to
arrive at the estimated 245 million barrels net to Devon’s interest. The ACG contract is a
rate-of-return contract that results in a royalty rate considerably more than 12.5%. In fact, the
year-end 2005 effective royalty rate was over 70%. Accordingly, Devon’s net reserves in the ACG
field at year-end 2005 were approximately 85.8 million barrels.
We propose to delete the sentence on page 25 that refers to the five billion barrels of gross
reserves. In its place we will add the following statement:
Devon’s net proved reserves in the ACG field at the end of 2005 totaled approximately 85.8
million barrels.
We propose the addition of the above disclosure to our 2006 Form 10-K rather than in an amendment
of our 2005 Form 10-K.
Selected Financial Data, page 28
Operating Results, page 28
SEC Comment
11.
Tell us if the average prices shown here include the effects of hedging. If so, you should
revise the document to note this in the filing.
Response
Yes, the average prices include the effects of hedging. As disclosed in footnote 2 on page 29,
“The preceding price data includes the effect of derivative financial instruments and fixed-price
physical delivery contracts.”
SEC Comment
12.
Tell us if the average production and operating expenses include production taxes. If not,
you should revise your document to include these.
U.S. Securities and Exchange Commission
June 8, 2006
Page 6
Response
Yes, the average production and operating expenses include production taxes. Please note the table
on page 36, which indicates that the amounts of production and operating expenses per Boe include
lease operating expenses and production taxes.
Results of Operations, page 32
SEC Comment
13.
You disclose, before the effect of hedging, your 2005 average oil price to be $48.49 per
barrel. However, according to the EIA website, the average 2005 oil price of Brent and WTI
was $54.60 and $56.58 per barrel, respectively. Please reconcile to us your reported average
oil prices to us with those on the EIA website.
Response
WTI and Brent are probably the two most commonly referenced types of crude oil. However, as the
EIA website also points out, there are about 161 different internationally traded crude oils that
vary in terms of characteristics, quality and market penetration. Crude oil is referred to as
either “light” or “heavy” depending on its API gravity, with light crude being those with the
higher API gravity. Crude oil is also referred to as either “sweet” or “sour” depending on its
sulfur content, with sweet crude containing lower levels of sulfur. Both WTI and Brent are
characterized as light sweet crude. Light sweet crude demands the highest market price of all the
various grades of crude. As such, WTI and Brent are used as “reference prices,” but a significant
portion of world oil production is of lower quality than W