Although much has been said about it, the new Regulation FD (Fair Disclosure) does not materially change the rules of conduct between public companies and analysts, shareholders, the press and others, but makes the rules easier to enforce. Selective disclosure has always been inappropriate and possibly illegal. The new regulation emulated the National Investor Relations Institute's (NIRI) guidelines on fair disclosure and gives the Securities and Exchange Commission a ready means of enforcing the rules. Prior to adoption of Reg FD, the SEC indirectly regulated disclosure with the application of its antifraud rules, which prohibit false or misleading disclosure or the omission of material facts. So what has changed? Most of what is said and written about Reg FD laments that it has shut down communication between analysts and the companies they follow. This is not necessarily true. In a study conducted by NIRI in March 2001, 75% of investor-relations officers say they are providing as much or more information to investors and analysts since October 2000, when Reg FD took effect. Certainly there has been a lot of confusion and concern about what to say and when to say it. But this is not entirely the result of Reg FD. As the market has moved south, some companies are using Reg FD as an excuse to not talk about their less-than-stellar results. Companies tend to report less when the news isn't as good. And Reg FD came along at the right time to provide a reason to clam up. This isn't to say that Reg FD hasn't had an impact. It has. But not all of these changes are bad. Two of the biggest changes are broader access to conference calls and a more formal, and accessible, approach to guidance. More is better. Give information, and give it to everyone. Conference calls should be open to everyone, and the new regulation has made this a reality. In the energy sector in particular, some firms were slow to embrace the Internet. The new regulation has accelerated Internet use and the flexibility it gives companies to distribute information. There has been a dramatic increase in the number of firms hosting Internet conference calls. Another area changing dramatically is how companies give guidance to analysts regarding earnings. The rule specifically states that giving selective guidance on forecasts is likely a violation of Reg FD. A solution to this problem and the recommendation of NIRI is to publicly provide the company's own range of earnings forecasts-while avoiding comment on specific analyst forecasts. EnerCom Inc. conducted a survey of energy companies in April 2001, to determine what they are doing to provide guidance. The results The EnerCom survey included 14 of the largest independents and found 14 different approaches to guidance. Generally the firms providing the most information are also the firms with the most credible reputations in the market. The companies included in the survey are generally mid- to large-cap companies ranging from $1 billion to more than $10 billion in market capitalization. Sellside analysts were also interviewed. For each company, published data including press releases and SEC filings were reviewed as well as each firm's web site, to determine how companies are using technology to distribute data. When available, replays of conference calls were reviewed, to gauge how firms are handling requests for information. Company representatives were interviewed when possible, to get insight into how each firm views its guidance strategy. Specific points of the survey are discussed here and compared with the NIRI survey that was conducted in March 2001 and included more than 500 NIRI-member companies, representing all industries. How do you provide earnings guidance? There is no standard method for distributing earnings guidance, although 100% of the companies in the EnerCom survey provide some type of guidance. This compares with 79% of companies in the NIRI survey that give some form of earnings guidance. Within the EnerCom survey group, 57% give guidance in a press release, either the quarterly release or a separate release, which is slightly less than reported by the broader NIRI group. Interestingly, 36% of the EnerCom survey respondents file an 8-K to give guidance, while only 14% of those surveyed by NIRI use the 8-K as a means of providing guidance. The majority of energy firms surveyed will discuss earnings guidance in the quarterly conference call. Only two (Anadarko Petroleum and Ocean Energy) host a conference call for the exclusive purpose of providing earnings guidance. One rather significant change, and probably the cause of much complaint, is a decline in specific feedback on analysts' earnings models. In the EnerCom and NIRI surveys, company representatives have indicated much less willingness to review or give feedback on models or reports. Where feedback is given it is strictly limited to correcting factual data. What information is included in guidance? The objectives of providing guidance can range from meeting minimum standards for disclosure, assisting in the setting of expectations, improving overall investor communications and even enhancing analyst coverage. If the objective is only to meet the minimum standards, little or no information can be given, which would generate little or no interest from Wall Street. According to sellside analysts when asked for their perspective on guidance, how Reg FD has changed things and if they think companies are giving enough information-not surprisingly, opinions varied significantly. Some analysts feel little has changed since Reg FD went into effect. They use published information, develop a model and get feedback from the company, just as they have always done. Others have a completely different view. They say Reg FD has restricted access to information and that the long-term impact will be more disparity in Street estimates, more surprises and more stock volatility. All analysts would like to see more detailed information and multiperiod guidance, beyond just the current year. EnerCom grouped each of the companies into one of three categories: those that give little or no guidance, those that give a base amount of guidance and those that attempt to inform and build credibility by giving ample guidance. The firm's assessment of which group a company fell into was fairly subjective, based on the information it was able to find through its research and conversations with company representatives. There is no apparent relationship between size and the amount of guidance. NIRI found that the larger companies tended to give more guidance, with 88% of larger companies giving guidance versus 65% of small companies. This difference can be explained in part by the fact that the EnerCom survey included only mid- and large-cap companies. All E&P companies provide production estimates and a capex budget and most give estimates of LOE, general and administrative costs, and DD&A. Less than half of the companies surveyed give price projections, although the majority provide regional price-differential data, allowing analysts to adjust their internal commodity-price estimates. Almost all of the companies give guidance for the upcoming quarter and year, and more than half give ranges of estimates rather than specific numbers. None of the companies surveyed give guidance beyond one year. Remember that guidance is a tool that can be used to build investor interest. Companies should strive to provide as much information as is reasonable using the following guidelines: • Know what is behind the guidance items and make sure the item is risk-adjusted for the range of normal business volatility. • If the guidance shows improvement, be sure the improvement is achievable. • Don't box yourself into a corner on specific information that is not material to the company's value. If the item is difficult to forecast then don't forecast the item. • Define why you want to give the specific guidance and how it helps the company. More detail isn't necessarily better. • Plan for the communication of both positive and negative changes on each of the items, for which you elect to provide guidance. Do you have a formal disclosure policy? With one exception, none of the companies EnerCom surveyed has a formal, written disclosure policy. In this area the survey group seems to diverge from the broader NIRI group in which 63% reported having formal written policies, up from 40% in 1998. Further, an additional 25% of the NIRI respondents indicated plans to establish a formal policy, while none of the EnerCom survey respondents indicated any plans to do so. Where to from here? To assist companies in understanding their obligations and responsibilities with regard to corporate disclosure of material information, here are some key recommendations: • Issue a news release using a major wire service in advance of any forum (including conference presentations) that is used to elaborate on operations and earnings, to discuss with analysts and/or investors anticipated material trends or developments, or to announce major corporate developments that have not been previously released. Post the news immediately to your web site. And if you like the belt-and-suspenders approach, file the news release on a Form 8-K with the SEC. • Do not provide guidance to analysts or investors individually. Release full-year estimates (use ranges) via an 8-K and/or a news release. Update the numbers as the year progresses and new and material information warrants. If you really want to "wow" them and drive your legal counsel insane, consider giving guidance beyond one year. • Material information not contained in a news release or other readily available document (i.e., forms 10-K, 10-Q or 8-K) should not be divulged in a phone call or a one-on-one meeting. If this should occur, the company is obligated to issue a news release publicly updating the new material information. The requirement is 24 hours, but sooner is better. • Conference calls should be open to all interested parties, including analysts, investors and the media. Conference calls are intended to give analysts and institutional investors an opportunity to gain greater insight for their analytical needs. Therefore, the media and individual investors should be allowed to participate in a listening mode or via a live web cast. A taped replay of the conference call or a delayed web cast will not meet the presumption of full and fair disclosure. In the year since Reg FD was passed, much has been written, said, debated, discussed and blamed on the new regulation. With the new regulation, most companies are approaching disclosure more thoughtfully. And, in the energy sector, this has prompted more companies to utilize available technology to communicate with investors.