Are shale gas companies overstating reserves?

NEW YORK (CNNMoney) — Recent reports of an investigation by the Securities and Exchange Commission into whether shale gas companies are overstating their gas reserves highlights the challenges investors face in navigating this emerging sector.

Last week a research note from the investment management firm Robert W. Baird, citing industry lawyers, said the SEC is looking into whether shale gas companies may be overestimating the amount of natural gas they hold beneath the ground.

The investigation is most likely politically motivated and not entirely unwelcome, the note said, sparked by congressional calls for SEC action following a scathing report in the New York Times questioning the reserves held by some shale gas firms.

“We view it as appropriate and expected for the SEC to evaluate compliance with new regulations if compliance is publicly questioned,” Christine Tezak, an energy and environmental policy analyst at Baird, wrote in the note. “A regulatory investigation may provide a clearer investment horizon than a ‘trial’ in the press.”

The SEC would not confirm or deny if an investigation is underway.