NEW YORK (MarketWatch) -- Just when you thought energy companies couldn't get any richer, they may get another boost from an overhaul in the way they report their oil and gas reserves.

The rules, undergoing their first revision in 25 years, could add billions of dollars' worth of untapped fossil fuels to their official regulatory filings in the not-too-distant future.

One change being considered would allow oil giant Chevron CVX, -2.74% to more formally disclose its roughly 436 million barrels of crude trapped in oil sands in Canada -- a massive trove of petroleum potentially worth $40 billion or more under today's record-high crude prices.

While Chevron openly mentions the oil sands in presentations to Wall Street, it takes a meticulous search of the company's corporate filings to find specific figures attached to them.

Why? Partly because oil sands are still officially classified as mineral assets, even though oil companies are rapidly stepping up the volume of crude they squeeze from the oil-laden sands of Alberta, Canada.

That classification may soon change, however, as the industry, joined by the Securities and Exchange Commission, Wall Street firms, trade associations and accounting specialists, inches closer to completing a far-reaching update of the way it tallies precious fossil fuel resources.

The stakes have never been higher, as oil prices continue to hit new highs, world demand increases and petroleum resources grow more expensive to find and develop.

For oil and gas companies, reserves accounting is comparable to bank deposits, though far trickier to prove.

Meanwhile, investors keep a close eye on whether companies manage to fully replace the reserves pumped out of the ground each year. Stocks have been known to plunge if a company misstates its reserves.

David Hobbs, head of research for Cambridge Energy Research Associates -- the consulting firm that has taken a lead in making the case for the overhaul -- said the new rules won't likely result in any huge new caches of fossil fuel coming to light since the oil majors already talk about significant resources that fall outside the scope of their formal disclosures.

But the update could result in a more level playing field by acknowledging progress the industry has made identifying reserves through better seismic readings and other technological advances.

"Updated rules ... would allow energy companies to recognize reserves earlier in the life cycle of the asset," Hobbs said. "That is what will be of interest to investors and companies raising money alike. And it will also allow a better apples-to-apples comparison of people's disclosures."

Deutsche Bank Analyst Paul Sankey said the stock market already includes oil sands and other resources in its valuation of Chevron and other companies, but the SEC rules need to catch up.

"The oil and gas industry has already moved on," he said. "The changes amount to a reclassification, but to the average person on the street, it won't mean much. There's not a lot of controversy that some kind of update is needed."

Still, oil and gas players are scrambling to take part in the effort, with nearly all of the 70 players that posted official comments on the SEC's Web site favoring an update of the regulations, which haven't been changed since 1982.

Since then, the industry has made huge strides in its ability to map and measure underground reserves and bring them to the surface.

Deepwater exploration and enhanced production technology, including directional drilling and the injection of steam or gas into reservoirs to coax more oil to the surface are among the industry's bigger recent accomplishments. At the same time, reserves once considered too costly to extract are financially viable with oil now fetching $110 a barrel.

Changing with the times

"In the decades that have passed since the adoption of these rules, there have been significant changes in the oil and gas industry," the SEC said in its concept release on the topic. "Some commentators have expressed concern that the commission's rules have not adapted to current practices and may not provide investors with the most useful picture of oil and gas reserves public companies hold."

Berne Mosley of the Federal Energy Regulatory Division said in a comment to the SEC that although about 15% of U.S. natural gas production now comes from shale formations and coalbeds, both are excluded from the SEC's classification of "proved reserves" -- an omission he argues should be rectified.

Deutsche Bank's Sankey said in a note to the SEC that an update to reserves accounting would improve comparability between companies with "relatively minor changes."

But Andy Oram, senior credit officer at Moody's, urged caution in any changes to the rules, saying companies shouldn't get a big boost in their net worth as a result.

"Are valuations of oil and gas companies suffering because of the regulations? I don't think so," he said. "Reserves are about capital per unit of production. A company can triple its reserves, but it's production that determines cash flow."

Roots in 2004

Reserves reporting moved to the front burner in 2004 when Royal Dutch Shell RDS.A, -1.68% disclosed that an internal audit showed it had artificially pumped up its reserves by at least 20%. The news dealt a severe blow to its share price and left shareholders grumbling that they no longer had a true sense of the company's worth.

During that time, Cambridge Energy Research Associates released a report titled "In Search of Reasonable Certainty" and submitted it to the SEC.

Gearing up its efforts last fall, the SEC appointed W. John Lee, an Academic Petroleum Engineering Fellow, head of the commission reviewing the reserves rules. His term ends this August.

Lee, a petroleum engineer at Texas A&M University, specializes in unconventional resources, reservoir management and gas reservoir engineering. He declined an interview for this story.

SEC spokesman John Nestor said no formal action has been scheduled on the reserves rules by the full commission.

The SEC's John White, director of the division of corporation finance, tapped Lee to help the agency assess "new technologies that companies use to evaluate current, and identify new, reserves" through a recommendation to the commission, the SEC said in October.

Joining the industry chorus for the update: Cambridge Energy Research Associates, the Society of Petroleum Engineers, and the American Petroleum Institute.

Other government agencies have also voiced support for changes, including the Federal Energy Regulatory Commission and the Department of Energy's Energy Information Administration.

Independent auditors, credit ratings agencies, and oil and gas groups also weighed in by a Feb. 15 deadline to comment on the SEC's concept release, which solicits opinions and views from experts and the public on possible regulatory actions.

Producers also weighed in, including Apache Corp. APA, -7.10% , EnCana ECA, +3.44% , Exxon Mobil XOM, -2.91% , Total SA TOT, -1.36% , BHP Billiton Petroleum BHP, -2.16% and Royal Dutch Shell RDS.A, -1.68% .

Reserves and resources

For now, oil companies lump their fossil fuel reserves into to groups: conventional and unconventional. Energy that fits the traditional guideline -- crude oil or natural gas -- is classified as "reserves"; everything else falls under the banner of "resources."

For examples, ConocoPhillips COP, -3.70% on March 12 disclosed existing resources with an energy content equivalent to 50 billion barrels of oil, while its reserves came in at 10.6 billion barrels.

During Chevron's presentation to Wall Street last month, one analyst asked about the impact of the company's 20% interest in the Athabasca Oil Sands Project in Alberta, Canada, which ranks as one of the largest development projects on the planet, and whether a rule change would boost its official reserve figures.

George Kirkland, executive vice president of Chevron's global upstream and gas division, said Chevron would get a "substantial bump" in reserves if allowed to include the Athabasca Oil Sands.

"We have got the base business, the first development, and we have got Expansion 1, so both of those would become reserves from that sense," he said.

Chevron CEO Dave O'Reilly said the company is glad the SEC looking into it.

"There are some changes, but we don't see the changes being radical," O'Reilly said. "I mean, the issue for us is we have this opportunity to move a lot of resources into proven reserves by current definition...

"Obviously, the big projects that we have in our queue help us a lot, but we are also -- getting these projects where we have already booked some reserves, but have not yet booked most of the reserves on line, so we can demonstrate them I think is very important."