Securities Act Release No. 5036

January 19, 1970

Guide for Preparation of Prospectuses Relating to Interests in Oil and Gas Programs.

On August 27, 1969, the Securities and Exchange Commission published, in Securities Act Release No. 5001, a proposed guide concerning the preparation of prospectuses relating to public offerings of interests in oil and gas programs and invited interested persons to comment thereon. The letters received have been carefully considered in the preparation of the definitive guide.

The guide represents the views of the staff of the Commission's Division of Corporation Finance and the Commission has authorized its publication in order to bring these views to the attention of prospective registrants. The guide is designed to accomplish, to the extent feasible, uniformity in both the sequence of the disclosures and their general content. Thus it should serve to assist issuers in preparing registration statements on Form S-1, as well as offering circulars under Regulation A, involving oil and gas drilling programs and facilitate the understanding and analysis of such programs by investors and enable them more readily to compare one offering with another.

The guide is published as Guide No. 55 in the series of registration guides published December 9, 1968, in Securities Act Release No. 4936. The text of the guide follows.

Prospectuses Relating to Interests in Oil and Gas Programs

55. Disclosures in prospectuses relating to oil and gas drilling programs should appear in the sequence indicated below, except that the table of contents, required by paragraph (c) of Rule 421 under the Act, to be included in the forepart of the prospectus may be inserted at any appropriate place in the sequence of disclosures.

The following disclosures should be included under appropriate captions:

1. Summary of Program.  There should be set forth briefly on the cover page of the prospectus a summary which should include the following:  (1) Terms of Offering:  State the title and general nature of the securities (interests in the proposed program) being offered; the maximum aggregate amount of the offering; the minimum aggregate amount necessary to initiate the program; the disposition of the funds raised if they are not sufficient for that purpose; the minimum subscription price; the period of the offering; any provisions for additional assessments; and a brief description of the proposed method of distribution, including the amount of any commission to be paid. If funds received from investors are not to be held in trust or in special account pending expenditures in the program, appropriate disclosures should be set forth including when appropriate reference to exposure to claims of creditors of the custodian of the funds. The tabular presentation specified in Item 1 of Form S-1 may be omitted. (2)  Compensation:  Describe generally all cash or property interests that will be paid as compensation in connection with the program, including underwriting commission; (3)  Participation in Costs and Revenues:  Show the percentages of expenditures to be borne, respectively, by the investors and by other parties, who should be briefly identified, and the percentages of revenues to be payable, respectively, to investors and to other parties, who should be briefly identified; and (4) Application of Proceeds:  Indicate the minimum dollar amount of net proceeds (excluding additional assessments) that will be available to finance the program and the proposed estimated percentages thereof to be used for financing the principal activities of the program, such as acreage acquisition, drilling of exploratory wells, drilling of development wells and purchase of producing properties.

2. The Risk Factors.  The investor should be advised in a carefully organized series of short, concise paragraphs, under subcaptions where appropriate, of the risks he should consider before making an investment in the program and should include cross-reference to where in the prospectus further information may be found.

3. Definitions.  Include an appropriate glossary of terms used in the prospectus which should not be inconsistent with their customary usage in the oil and gas industry.

4. Terms of the Offering.  Describe the interests and the amount and terms of offering.

5. Additional Assessments.  Describe those assessments which may be later required from investors either for completion of wells or for the drilling of additional wells and where available, historical information relating to past programs, of the registrant or its associates, should be shown, in tabular form, indicating for each program, the aggregate amount (excluding assessments) paid by investors, the aggregate amount of additional assessments separately required for (a) the completion of wells and (b) the drilling of additional wells.

6. Plan of Distribution.  Describe how the interests being offered are to be sold, as well as arrangements for compensation.

7. Proposed Activities.  Describe the proposed activities of the program in which the interests are being offered.

8. Application of Proceeds.  Include an appropriate percentage estimate of the proceeds to be applied to the different purposes within each of the principal activities of the program, such as acreage acquisition, drilling of exploratory wells, drilling of development wells and the purchase of producing properties. Where possible, the information should be set forth in tabular form.

 9. Participation in Costs and Revenues.  Describe the arrangements and understandings with respect to the provision of funds for expenditures in connection with the program and with respect to participation in revenues from any production of minerals which may be realized. Where possible, the information should be set forth in tabular form.

10. Compensation.  Describe, whether in the form of cash or property interests, the compensation for underwriting, managerial, and operational services to be rendered in connection with the program, as well as the sources from which such compensation will be paid. Where possible, the information should be set forth in tabular form.

11. Management.  Include the disclosures required by Items 16 through 20 of Form S-1 as to, respectively, the management and operating companies.

12. Conflict of Interest.  Describe all conflicts of interest which may arise in the operations of the program involving parties engaged in the management and operation of the program.

13. Prior Activities.  Describe in tabular form the results of programs during at least the past ten years of the registrant or its associates, indicating in appropriate detail for each of the programs (1) the drilling results thereof, and (2) for, respectively, (a) the public investors and (b) others, the total investment in each of such programs and the recovery on investment to date and for the last three months of the period covered, together with any other information as may be appropriate.

14. Tax Aspects.  Discuss the tax consequences of oil and gas exploration, drilling and production, as well as federal tax legislation which has been proposed. This may include, in tabular form, only historical information relating to past programs of the registrant or its associates, showing expenses deductible and income taxable.

15. Other captions should then follow, such as Competition, Limited Partnership Agreement, Agent Agreement, Exploration Agreement, and Operating Agreement, under which other required information is set forth.

By the Commission.