According to the Securities and Exchange Commission (SEC), proved reserves are “the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.”

Proved reserves are the concept on which the whole oil business is based. It is a main factor in how oil and gas companies are valued and in determining how much money banks will loan companies. Much of oil and gas lending is known as reserved-based lending.

Exxon’s latest move is even more remarkable, however, because it has a reputation for being resistant to properly valuing reserves, often lagging behind the other oil major companies in making these downward adjustments.

In this case, the market — and the SEC— forced Exxon’s hand on the matter. SEC rules require that oil and gas companies value reserves based on the average price of oil from the previous 12 months.

In its latest SEC filing released this week, Exxon explains that this requirement essentially meant removing all of the value for its Canadian tar sands investments from its reserves.

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