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Resource and Reserve Classification and Reporting Standards for Oil and Gas

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Member, SPE Oil and Gas Reserves Committee ... Tar Sands / Bitumen. Coal Bed Methane. Tight Gas. Gas Hydrates. 5. 19th April 2005. Page 5 ... – PowerPoint PPT presentation

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Title: Resource and Reserve Classification and Reporting Standards for Oil and Gas


1
Resource and Reserve Classification and
Reporting Standards for Oil and Gas
IASB BOARD MEETING, APRIL 2005, AGENDA PAPER 2B
  • Duncan Frost
  • Member, SPE Oil and Gas Reserves Committee
  • Presented to IASB Board Meeting, 19th April 2005,
    on behalf of IASB Extractive Activities Project
    Team and SPE Oil and Gas Reserves Committee.

2
Outline
  • Background.
  • Types of oil and gas accumulations.
  • Reservoir Characteristics.
  • What is a hydrocarbon Resource or Reserve?
  • SPE and other Classification Systems Reporting
    Standards.
  • SPE/WPC/AAPG resources reserves system.
  • Regulatory reporting codes.
  • Who prepares the estimates?
  • Uses of resource and reserve estimates.
  • Current resource / reserve reporting practices
  • Current future developments.

3
Oil Gas Presentation
BACKGROUND
4
BackgroundTypes of Hydrocarbon Accumulations
  • Conventional reservoirs (Oil and Gas)
  • Tar Sands / Bitumen
  • Coal Bed Methane
  • Tight Gas
  • Gas Hydrates

5
BackgroundTypical Reservoir Characteristics
Hydrocarbons trapped in porous permeable
rocks Oil in place rock volume porosity
saturation Recovered volume Oil in Place
Recovery Factor
6
BackgroundScale
  • Typical Deepwater West Africa Field
  • Height of St Pauls
  • 50 square kilometres
  • Develop decision on 2 6 wells
  • Wells are 15 cm in diameter
  • 1 part in a billion areal sampling !

7
BackgroundScale - Field over London
8
Houston Horn Mt
9
BackgroundTypical lifecycle of an oilfield
2015
2035
1995
2025
2005
10
Oil Gas Presentation
What is a Hydrocarbon Resource or Reserve?
11
What is a Resource / Reserve?Nomenclature
Resources and Reserves
12
What is a Resource / Reserve?Summary of key
points
  • Resource evaluation is
  • inherently uncertain
  • an estimate at a point in time and subject to
    change.
  • Reliant on evaluator competence, skill and
    judgement
  • It is dependent on technical commercial factors
  • Development choices
  • Reservoir geological complexity
  • Data quantity quality
  • Stage of development

13
What is a Resource / Reserve?Estimation of
recovery in place volumes
  • Area Seismic, well test analysis
  • Thickness wells seismic
  • porosity saturation wellbore measurements /
    seismic
  • fluid properties fluid samples
  • Fluid contacts well penetration, pressure
    measurements, seismic

Integrated evaluation, heavily reliant on data
quality, data quantity, geological and
engineering interpretation
14
What is a Resource / Reserve?Estimation of
recovery Recovery Factor
  • Recovery can range from 1 to 80. Typically 20
    50
  • Project choice what recovery for what effort to
    get it?
  • Key choices include
  • What recovery method? Improved Recovery?
  • How many wells?
  • What contingency mitigations?
  • Outcome uncertain due to state of nature and
    future reservoir management choices

15
What is a Resource / Reserve?Estimation of
recovery commercial
  • Does it Make Money?
  • Costs
  • Production profile
  • Fiscal regime
  • Economic conditions (product price, exchange
    rate)
  • Will it happen?
  • Contractual rights
  • Political risks
  • Internal and external approvals

16
Oil Gas Presentation
SPE Classification System and other Reporting
Standards
17
SPE Classification SystemWho are the SPE?
  • The Society of Petroleum Engineers
  • A volunteer technical / professional
    organisation.
  • Mission statement
  • To collect, disseminate, and exchange technical
    knowledge concerning the exploration, development
    and production of oil and gas resources

18
SPE Classification SystemSPE Oil Gas Reserves
Committee
  • The committee is charged with
  • Oil and gas reserve matters, including reserve
    definitions and standards
  • Disseminating reserve information to other groups
  • Liaising with other organizations to achieve
    worldwide use of standard reserve definitions
  • Monitoring of activities in the reserve
    definition area
  • Informing the SPE Board on reserves issues.
  • IASB recently appointed an observer.

19
SPE Classification SystemHistory of SPE Reserves
Definitions
  • 1964 First SPE definitions, from API
  • 1978 SEC Reserves Definitions
  • 1987 Separate SPE WPC definitions
  • 1997 SPE / WPC Reserves Definitions
  • 2000 SPE/WPC/AAPG Resource Definitions
  • 2001 Guidelines Auditing Standards
  • 2004 SPE Glossary of Terms

SEC Securities and Exchange Commission WPC
World Petroleum Council AAPG American
Association of Petroleum Geologists
20
SPE Classification SystemSPE/WPC/AAPG Resource
Definitions
21
SPE Classification SystemResource Definitions
with project status
22
SPE Classification SystemProved Reserves
  • Proved reserves are those quantities of
    petroleum which, by analysis of geological and
    engineering data, can be estimated with
    reasonable certainty to be commercially
    recoverable, from a given date forward, from
    known reservoirs and under current economic
    conditions, operating methods, and government
    regulations. Proved reserves can be categorized
    as developed or undeveloped.

23
SPE Classification SystemDeterministic or
Probabilistic approach
Proved
Probable
Possible
Probability
Probabilistic
P50
P90
P10
Reserves
Deterministic / Scenario based
Best Estimate
Conservative Case
Upside Scenario
24
SPE Classification SystemUnproved Reserves
  • Un proved recovery less certain than proved.
  • Probable recovery is more likely than not.
  • Possible greater than 10 chance of recovery
  • So, colloquially (for a given project)
  • Proved pretty sure youll get at least this
  • Proved Probable what you expect to get
  • Proved Probable Possible what youll get if
    youre lucky

25
SPE Classification SystemKey aspects of SPE
Reserves Definitions
  • Principle based definitions
  • Recognition that application will evolve over
    time
  • Guidelines provide the details
  • 3P basis, with resource framework
  • Deterministic or probabilistic
  • Flexibility in economic conditions

26
Other Classification Systems / Reporting Codes
  • National Resource Classifications.
  • e.g. China Norway Russia
  • National Disclosure regulations
  • e.g. USA (SEC), UK (SORP), Canada (NI 51-101)
  • Evolving International Standards.
  • SPE / WPC / AAPG Resource Reserves Definitions
  • UNFC

UNFC United Nations Framework Classification
27
Other Classification Systems / Reporting
Codes UNFC Potential alignment with SPE
E Axis Reflects Economic and Commercial Viability
F Axis Reflects Project Status
G Axis Reflects Level of Uncertainty
From SPE Paper 90839
28
Oil Gas Presentation
Who prepares the estimates?
29
Who Prepares the Estimates?
  • Not specified in most regulations
  • SPE publishes Standards Pertaining to the
    Estimating and Auditing of Oil and Gas Reserve
    Information
  • This standard not formally adopted by any
    regulator

30
Oil Gas Presentation
Uses of Resource And Reserve estimates?
31
Uses of Resource / Reserves EstimatesVolumes
  • Financial Reporting (on UOP basis)
  • Oil Gas property transactions
  • Bank Lending
  • Equity investment
  • Oil and Gas Companies
  • National Governments
  • The Relevant volume depends on your use for it.

32
Uses of Resource / Reserves EstimatesValue
  • Volume not always a good proxy for value .e.g.
    PSC
  • Only value related disclosure is SEC SMOG.
  • Value is a function of production profile (hence
    volume), capex, opex, fiscal terms, product
    prices, exchange rates, risks to recovery.

33
Oil Gas Presentation
Current Resource / Reserve Reporting Practices?
34
Current Reporting Practices Financial Reporting
  • Each jurisdiction has separate reserves
    definitions.
  • SEC de facto global regulator. SEC proved
    only.
  • Canada Proved and Probable
  • UK A choice Proved or proved plus probable
  • Evolving International Standards.
  • SPE / WPC / AAPG
  • UNFC

35
Oil Gas Presentation
Current and future developments
36
Current future developments
  • IASB development of extractive activities
    standard.
  • SEC de facto global regulator at present.
  • SPE / WPC / AAPG de facto industry standard
  • UNFC broad, integrating framework

37
Current Future DevelopmentsSPE Vision
current activities
  • Vision - A set of reserves resource definitions
    (and an associated set of estimating guidelines,
    which are current best practices) universally
    adopted by the oil and gas industry,
    international financial organizations, and
    regulatory and reporting bodies.
  • Activities
  • Update of definitions / guidelines
  • Liaison with IASB, UNFC group
  • Mapping of other definitions

38
Oil Gas Presentation
Concluding Comments
39
Differences between minerals / oil gas volume
reporting.
  • Mineral Resource/Reserve classification based on
    deterministic methods, whereas Oil and Gas
    Resource/Reserve classification based on
    deterministic or probabilistic methods.
  • Both systems include Proved and Probable
    Reserves, but
  • There are important differences in the respective
    definitions
  • Oil/gas system includes Possible Reserves which
    are not recognised in the Minerals system
  • Oil/gas system includes Contingent and
    Prospective Resources Minerals system includes
    Measured, Indicated and Inferred Mineral
    Resources
  • Sub-categories of Mineral Resources and Ore
    Reserves must be reported separately.
    Sub-categories of Oil/gas Resources/Reserves
    usually reported combined (2P, 3P)

40
Concluding CommentsSummary of key points
  • Reserve/Resource estimates are inherently
    uncertain
  • There is no universally accepted global standard
  • SPE/WPC/AAPG definitions in most widespread use.
  • UNFC a flexible framework, possibly consistent
    with SPE/WPC/AAPG
  • Proved reserves are to a confidence level of
    reasonable certainty. i.e. pretty confident of
    them
  • Most regulators require disclosure of proved,
    some also of probable.
  • Volume not necessarily a good proxy for value.

41
Concluding CommentsFurther Information.
  • SEC definitions (Regulation S-X 4.10)
    www.sec.org
  • There is no universally accepted global standard
  • SPE/WPC/AAPG definitions in most widespread use.
  • UNFC a flexible framework, possibly consistent
    with SPE/WPC/AAPG
  • Proved reserves are to a confidence level of
    reasonable certainty. i.e. pretty confident of
    them
  • Most regulators require disclosure of proved,
    some also of probable.
  • Volume not necessarily a good proxy for value.

42
Concluding CommentsFurther Information.
  • SPE Reserves Definitions Other Resources
  • www.spe.org/spe/jsp/basic/0,,1104_1730,00.html
  • www.spe.org
  • SEC Definitions (Regulation S-X 4.10)
  • www.sec.gov/divisions/corpfin/forms/regsx.htmgas
  • Canadian Definitions
  • www.albertasecurities.com
  • UNFC Definitions
  • www.unece.org/ie/se/reserves.html
  • UK Definitions
  • www.oiac.co.uk
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