Look for 2008 reserve statements to drive relative performance, says Morgan Stanley & Co. Inc.'s analyst, Stephen Richardson. "Following the 59% and 26% declines in yearend crude and natural gas prices, the Street is focused on fiscal year 2008 reserve statements for E&Ps and the potential value, impairment, and credit impacts from revisions," he says. "Expectations are that oil-levered, high-proved undeveloped reserves, subject to future development-cost assumptions, and natural gas assets exposed to particularly weak regional pricing, will be the most at risk to yearend write downs." Reserve write downs are anticipated and non-cash in nature, according to his findings. However reserve statements will provide insight into cost structures (particularly should commodity prices remain at current levels), capital efficiencies (as reserves added per dollar of capital spend remains a key value driver) and credit availability (as borrowing bases are often confirmed quarterly and are based on proved reserve valuations). Lower yearend proved reserve valuations may trigger a redetermination of the borrowing base with creditors. "Following recent disclosure and discussions with companies, we have applied assumed revision factors across the group," says Richardson. "While organic F&D is expected to fall 25% year-on-year, due to revisions we expect yearend proved reserves to decline by 1% year-on-year for the group, notably ranging about 40%, plus or minus, among the stocks."