Content of PetroWiki is intended for personal use only and to supplement, not replace, engineering judgment. SPE disclaims any and all liability for your use of such content. More information
Difference between revisions of "Petroleum Resources Management System"
(Section 2 structure - so that Table of contents would not have numbers with no content displayed)
|Line 700:||Line 700:|
|Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.
|Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.
|Reserves must satisfy four criteria: discovered, recoverable, commercial, and remaining based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by the development and production status.
|Reserves must satisfy four criteria: discovered, recoverable, commercial, and remaining based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by the development and production status.
Revision as of 21:24, 20 September 2020
Petroleum resources are the quantities of hydrocarbons naturally occurring on or within the Earth’s crust. Resources assessments estimate quantities in known and yet-to-be-discovered accumulations. Resources evaluations are focused on those quantities that can potentially be recovered and marketed by commercial projects. A petroleum resources management system provides a consistent approach to estimating petroleum quantities, evaluating projects, and presenting results within a comprehensive classification framework.
International efforts to standardize the definitions of petroleum resources and how resources volumes are estimated began in the 1930s. Early guidance focused on Proved Reserves. Building on work initiated by the Society of Petroleum Evaluation Engineers (SPEE), the Society of Petroleum Engineers (SPE) published definitions for all reserves categories in 1987. In the same year, the World Petroleum Council (WPC), then known as the World Petroleum Congress, independently published reserves definitions that were strikingly similar. In 1997, the two organizations jointly released a single set of definitions for reserves that could be used worldwide. In 2000, the American Association of Petroleum Geologists (AAPG), SPE, and WPC jointly developed a classification system for all petroleum resources. This was followed by supplemental application evaluation guidelines (2001), standards for estimating and auditing reserves information (2001, revised 2007), and a glossary of terms used in resources definitions (2005). In 2007, the SPE/WPC/AAPG/SPEE Petroleum Resources Management System (PRMS) was issued and subsequently supported by the Society of Exploration Geophysicists (SEG). The document is referred to by the abbreviated term SPE-PRMS, with the caveat that the full title, including clear recognition of the co-sponsoring organizations, has been initially stated. In 2011, the SPE/WPC/AAPG/SPEE/SEG published Guidelines for the Application of the PRMS (referred to as Application Guidelines).
The PRMS definitions and the related classification system are now in common use internationally to support petroleum project and portfolio management requirements. PRMS is referenced for national reporting and regulatory disclosures in many jurisdictions and provides the commodity-specific specifications for petroleum under the United Nations Framework Classification for Resources (UNFC) to support petroleum project and portfolio management requirements. The definitions provide a measure of comparability, reduce the subjective nature of resources estimation, and are intended to improve clarity in global communications regarding petroleum resources.
Technologies employed in petroleum exploration, development, production, and processing continue to evolve and improve. The SPE Oil and Gas Reserves Committee works closely with related organizations to maintain the definitions and guidelines to keep current with evolving technology and industry requirements.
This document consolidates, builds on, and replaces prior guidance. Appendix A is a glossary of terms used in the PRMS and replaces those published in 2007. It is expected that this document will be supplemented with industry education programs, best practice reporting standards, and future updates to the 2011 Application Guidelines.
This updated PRMS provides fundamental principles for the evaluation and classification of petroleum reserves and resources. If there is any conflict with prior SPE and PRMS guidance, approved training, or the Application Guidelines, the current PRMS shall prevail. It is understood that these definitions and guidelines allow flexibility for entities, governments, and regulatory agencies to tailor application for their particular needs; however, any modifications to the guidance contained herein must be clearly identified. The terms “shall” or “must” indicate that a provision herein is mandatory for PRMS compliance, while “should” indicates a recommended practice and “may” indicates that a course of action is permissible. The definitions and guidelines contained in this document must not be construed as modifying the interpretation or application of any existing regulatory reporting requirements.
1.0 Basic Principles and Definitions
220.127.116.11 A classification system of petroleum resources is a fundamental element that provides a common language for communicating both the confidence of a project’s resources maturation status and the range of potential outcomes to the various entities. The PRMS provides transparency by requiring the assessment of various criteria that allow for the classification and categorization of a project’s resources. The
evaluation elements consider the risk of geologic discovery and the technical uncertainties together with a determination of the chance of achieving the commercial maturation status of a petroleum project.
18.104.22.168 The technical estimation of petroleum resources quantities involves the assessment of quantities and values that have an inherent degree of uncertainty. Quantities of petroleum and associated products can be reported in terms of volumes (e.g., barrels or cubic meters), mass (e.g., metric tonnes) or energy (e.g., Btu or Joule). These quantities are associated with exploration, appraisal, and development projects at various stages of design and implementation. The commercial aspects considered will relate the project’s maturity status (e.g., technical, economical, regulatory, and legal) to the chance of project implementation.
22.214.171.124 The use of a consistent classification system enhances comparisons between projects, groups of projects, and total company portfolios. The application of PRMS must consider both technical and commercial factors that impact the project’s feasibility, its productive life, and its related cash flows.
1.1 Petroleum Resources Classification Framework
126.96.36.199 Petroleum is defined as a naturally occurring mixture consisting of hydrocarbons in the gaseous, liquid, or solid state. Petroleum may also contain non-hydrocarbons, common examples of which are carbon dioxide, nitrogen, hydrogen sulfide, and sulfur. In rare cases, non-hydrocarbon content can be greater than 50%.
188.8.131.52 The term resources as used herein is intended to encompass all quantities of petroleum naturally occurring within the Earth’s crust, both discovered and undiscovered (whether recoverable or unrecoverable), plus those quantities already produced. Further, it includes all types of petroleum whether currently considered as conventional or unconventional resources.
184.108.40.206 Figure 1.1 graphically represents the PRMS resources classification system. The system classifies resources into discovered and undiscovered and defines the recoverable resources classes: Production, Reserves, Contingent Resources, and Prospective Resources, as well as Unrecoverable Petroleum.
220.127.116.11 The horizontal axis reflects the range of uncertainty of estimated quantities potentially recoverable from an accumulation by a project, while the vertical axis represents the chance of commerciality, Pc, which is the chance that a project will be committed for development and reach commercial producing status.
18.104.22.168 The following definitions apply to the major subdivisions within the resources classification:
A. Total Petroleum Initially-In-Place (PIIP) is all quantities of petroleum that are estimated to exist originally in naturally occurring accumulations, discovered and undiscovered, before production.
B. Discovered PIIP is the quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations before production.
C. Production is the cumulative quantities of petroleum that have been recovered at a given date. While all recoverable resources are estimated, and production is measured in terms of the sales product specifications, raw production (sales plus non-sales) quantities are also measured and required to support engineering analyses based on reservoir voidage (see Section 3.2, Production Measurement).
22.214.171.124 Multiple development projects may be applied to each known or unknown accumulation, and each project will be forecast to recover an estimated portion of the initially-in-place quantities. The projects shall be subdivided into commercial, sub-commercial, and undiscovered, with the estimated recoverable quantities being classified as Reserves, Contingent Resources, or Prospective Resources respectively, as defined below.
A. 1. Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria: discovered, recoverable, commercial, and remaining (as of the evaluation’s effective date) based on the development project(s) applied.
2. Reserves are recommended as sales quantities as metered at the reference point. Where the entity also recognizes quantities consumed in operations (CiO) (see Section 3.2.2), as Reserves these quantities must be recorded separately. Non-hydrocarbon quantities are recognized as Reserves only when sold together with hydrocarbons or CiO associated with petroleum production. If the non-hydrocarbon is separated before sales, it is excluded from Reserves.
3. Reserves are further categorized in accordance with the range of uncertainty and should be sub-classified based on project maturity and/or characterized by development and production status.
B. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, by the application of development project(s) not currently considered to be commercial owing to one or more contingencies.Contingent Resources have an associated chance of development. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorized in accordance with the range of uncertainty associated with the estimates and should be sub- classified based on project maturity and/or economic status.
C. Undiscovered PIIP is that quantity of petroleum estimated, as of a given date, to be contained within accumulations yet to be discovered.
D. Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of geologic discovery and a chance of development. Prospective Resources are further categorized in accordance with the range of uncertainty associated with recoverable estimates, assuming discovery and development, and may be sub-classified based on project maturity.
E. Unrecoverable Resources are that portion of either discovered or undiscovered PIIP evaluated, as of a given date, to be unrecoverable by the currently defined project(s). A portion of these quantities may become recoverable in the future as commercial circumstances change, technology is developed, or additional data are acquired. The remaining portion may never be recovered because of physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.
126.96.36.199 The sum of Reserves, Contingent Resources, and Prospective Resources may be referred to as “remaining recoverable resources.” Importantly, these quantities should not be aggregated without due consideration of the technical and commercial risk involved with their classification. When such terms are used, each classification component of the summation must be provided.
188.8.131.52 Other terms used in resource assessments include the following:
A. Estimated Ultimate Recovery (EUR) is not a resources category or class, but a term that can be applied to an accumulation or group of accumulations (discovered or undiscovered) to define those quantities of petroleum estimated, as of a given date, to be potentially recoverable plus those quantities already produced from the accumulation or group of accumulations. For clarity, EUR must reference the associated technical and commercial conditions for the resources; for example, proved EUR is Proved Reserves plus prior production.
B. Technically Recoverable Resources (TRR) are those quantities of petroleum producible using currently available technology and industry practices, regardless of commercial considerations. TRR may be used for specific Projects or for groups of Projects, or, can be an undifferentiated estimate within an area (often basin-wide) of recovery potential.
184.108.40.206 Whenever these terms are used, the conditions associated with their usage must be clearly noted and documented.
1.2 Project-Based Resources Evaluations
220.127.116.11 The resources evaluation process consists of identifying a recovery project or projects associated with one or more petroleum accumulations, estimating the quantities of PIIP, estimating that portion of those in-place quantities that can be recovered by each project, and classifying the project(s) based on maturity status or chance of commerciality.
18.104.22.168 The concept of a project-based classification system is further clarified by examining the elements contributing to an evaluation of net recoverable resources (see Figure 1.2).
22.214.171.124 The reservoir (contains the petroleum accumulation): Key attributes include the types and quantities of PIIP and the fluid and rock properties that affect petroleum recovery.
126.96.36.199 The project: A project may constitute the development of a well, a single reservoir, or a small field; an incremental development in a producing field; or the integrated development of a field or several fields together with the associated processing facilities (e.g., compression). Within a project, a specific reservoir’s development generates a unique production and cash-flow schedule at each level of certainty. The integration of these schedules taken to the project’s earliest truncation caused by technical, economic, or the contractual limit defines the estimated recoverable resources and associated future net cash flow projections for each project. The ratio of EUR to total PIIP quantities defines the project’s recovery efficiency. Each project should have an associated recoverable resources range (low, best, and high estimate).
188.8.131.52 The property (lease or license area): Each property may have unique associated contractual rights and obligations, including the fiscal terms. This information allows definition of each participating entity’s share of produced quantities (entitlement) and share of investments, expenses, and revenues for each recovery project and the reservoir to which it is applied. One property may encompass many reservoirs, or one reservoir may span several different properties. A property may contain both discovered and undiscovered accumulations that may be spatially unrelated to a potential single field designation.
184.108.40.206 An entity’s net recoverable resources are the entitlement share of future production legally accruing under the terms of the development and production contract or license.
220.127.116.11 In the context of this relationship, the project is the primary element considered in the resources classification, and the net recoverable resources are the quantities derived from each project. A project represents a defined activity or set of activities to develop the petroleum accumulation(s) and the decisions taken to mature the resources to reserves. In general, it is recommended that an individual project has assigned to it a specific maturity level sub-class (See Section 18.104.22.168, Project Maturity Sub-Classes) at which a decision is made whether or not to proceed (i.e., spend more money) and there should be an associated range of estimated recoverable quantities for the project (See Section 2.2.1, Range of Uncertainty). For completeness, a developed field is also considered to be a project.
22.214.171.124 An accumulation or potential accumulation of petroleum is often subject to several separate and distinct projects that are at different stages of exploration or development. Thus, an accumulation may have recoverable quantities in several resources classes simultaneously. When multiple options for development exist early in project maturity, these options should be reflected as competing project alternatives to avoid double counting until decisions further refine the project scope and timing. Once the scope is described and the timing of decisions on future activities established, the decision steps will generally align with the project’s classification. To assign recoverable resources of any class, a project’s development plan, with detail that supports the resource commercial classification claimed, is needed.
126.96.36.199 The estimates of recoverable quantities must be stated in terms of the production derived from the potential development program even for Prospective Resources. Given the major uncertainties involved at this early stage, the development program will not be of the detail expected in later stages of maturity. In most cases, recovery efficiency may be based largely on analogous projects. In-place quantities for which a feasible project cannot be defined using current or reasonably forecast improvements in technology are classified as Unrecoverable.
188.8.131.52 Not all technically feasible development projects will be commercial. The commercial viability of a development project within a field’s development plan is dependent on a forecast of the conditions that will exist during the time period encompassed by the project (see Section 3.1, Assessment of Commerciality). Conditions include technical, economic (e.g., hurdle rates, commodity prices), operating and capital costs, marketing, sales route(s), and legal, environmental, social, and governmental factors forecast to exist and impact the project during the time period being evaluated. While economic factors can be summarized as forecast costs and product prices, the underlying influences include, but are not limited to, market conditions (e.g., inflation, market factors, and contingencies), exchange rates, transportation and processing infrastructure, fiscal terms, and taxes.
184.108.40.206 The resources being estimated are those quantities producible from a project as measured according to delivery specifications at the point of sale or custody transfer (see Section 3.2.1, Reference Point) and may permit forecasts of CiO quantities (see Section 3.2.2., Consumed in Operations). The cumulative production forecast from the effective date forward to cessation of production is the remaining recoverable resources quantity (see Section 3.1.1, Net Cash-Flow Evaluation).
220.127.116.11 The supporting data, analytical processes, and assumptions describing the technical and commercial basis used in an evaluation must be documented in sufficient detail to allow, as needed, a qualified reserves evaluator or qualified reserves auditor to clearly understand each project’s basis for the estimation, categorization, and classification of recoverable resources quantities and, if appropriate, associated commercial assessment.
2.0 Classification and Categorization Guidelines
18.104.22.168 To consistently characterize petroleum projects, evaluations of all resources should be conducted in the context of the full classification system shown in Figure 1.1. These guidelines reference this classification system and support an evaluation in which projects are “classified” based on their chance of commerciality, Pc (the vertical axis labeled Chance of Commerciality), and estimates of recoverable and marketable quantities associated with each project are “categorized” to reflect uncertainty (the horizontal axis). The actual workflow of classification versus categorization varies with individual projects and is often an iterative analysis leading to a final report. Report here refers to the presentation of evaluation results within the entity conducting the assessment and should not be construed as replacing requirements for public disclosures under guidelines established by regulatory and/or other government agencies.
2.1 Resources Classification
22.214.171.124 The PRMS classification establishes criteria for the classification of the total PIIP. A determination of a discovery differentiates between discovered and undiscovered PIIP. The application of a project further differentiates the recoverable from unrecoverable resources. The project is then evaluated to determine its maturity status to allow the classification distinction between commercial and sub-commercial projects. PRMS requires the project’s recoverable resources quantities to be classified as either Reserves, Contingent Resources, or Prospective Resources.
2.1.1 Determination of Discovery Status
126.96.36.199 A discovered petroleum accumulation is determined to exist when one or more exploratory wells have established through testing, sampling, and/or logging the existence of a significant quantity of potentially recoverable hydrocarbons and thus have established a known accumulation. In the absence of a flow test or sampling, the discovery determination requires confidence in the presence of hydrocarbons and evidence of producibility, which may be supported by suitable producing analogs (see Section 4.1.1,Analogs). In this context, “significant” implies that there is evidence of a sufficient quantity of petroleum to justify estimating the in-place quantity demonstrated by the well(s) and for evaluating the potential for commercial recovery.
188.8.131.52 Where a discovery has identified potentially recoverable hydrocarbons, but it is not considered viable to apply a project with established technology or with technology under development, such quantities may be classified as Discovered Unrecoverable with no Contingent Resources. In future evaluations, as appropriate for petroleum resources management purposes, a portion of these unrecoverable quantities may become recoverable resources as either commercial circumstances change or technological developments occur.
2.1.2 Determination of Commerciality
184.108.40.206 Discovered recoverable quantities (Contingent Resources) may be considered commercially mature, and thus attain Reserves classification, if the entity claiming commerciality has demonstrated a firm intention to proceed with development. This means the entity has satisfied the internal decision criteria (typically rate of return at or above the weighted average cost-of-capital or the hurdle rate). Commerciality is achieved with the entity’s commitment to the project and all of the following criteria:
A. Evidence of a technically mature, feasible development plan.
B. Evidence of financial appropriations either being in place or having a high likelihood of being secured to implement the project.
C. Evidence to support a reasonable time-frame for development.
D. A reasonable assessment that the development projects will have positive economics and meet defined investment and operating criteria. This assessment is performed on the estimated entitlement forecast quantities and associated cash flow on which the investment decision is made (see Section 3.1.1, Net Cash-Flow Evaluation).
E. A reasonable expectation that there will be a market for forecast sales quantities of the production required to justify development. There should also be similar confidence that all produced streams (e.g., oil, gas, water, CO2) can be sold, stored, re-injected, or otherwise appropriately disposed.
F. Evidence that the necessary production and transportation facilities are available or can be made available.
G. Evidence that legal, contractual, environmental, regulatory, and government approvals are in place or will be forthcoming, together with resolving any social and economic concerns.
220.127.116.11 The commerciality test for Reserves determination is applied to the best estimate (P50) forecast quantities, which upon qualifying all commercial and technical maturity criteria and constraints become the 2P Reserves. Stricter cases [e.g., low estimate (P90)] may be used for decision purposes or to investigate the range of commerciality (see Section 3.1.2, Economic Criteria). Typically, the low- and high-case project scenarios may be evaluated for sensitivities when considering project risk and upside opportunity.
18.104.22.168 To be included in the Reserves class, a project must be sufficiently defined to establish both its technical and commercial viability as noted in Section 22.214.171.124. There must be a reasonable expectation that all required internal and external approvals will be forthcoming and evidence of firm intention to proceed with development within a reasonable time-frame. A reasonable time-frame for the initiation of development depends on the specific circumstances and varies according to the scope of the project. While five years is recommended as a benchmark, a longer time-frame could be applied where justifiable; for example, development of economic projects that take longer than five years to be developed or are deferred to meet contractual or strategic objectives. In all cases, the justification for classification as Reserves should be clearly documented.
126.96.36.199 While PRMS guidelines require financial appropriations evidence, they do not require that project financing be confirmed before classifying projects as Reserves. However, this may be another external reporting requirement. In many cases, financing is conditional upon the same criteria as above. In general, if there is not a reasonable expectation that financing or other forms of commitment (e.g., farm-outs) can be arranged so that the development will be initiated within a reasonable time-frame, then the project should be classified as Contingent Resources. If financing is reasonably expected to be in place at the time of the final investment decision (FID), the project’s resources may be classified as Reserves.
2.1.3 Project Status and Chance of Commerciality
188.8.131.52 Evaluators have the option to establish a more detailed resources classification reporting system that can also provide the basis for portfolio management by subdividing the chance of commerciality axis according to project maturity. Such sub-classes may be characterized qualitatively by the project maturity level descriptions and associated quantitative chance of reaching commercial status and being placed on production.
184.108.40.206 As a project moves to a higher level of commercial maturity in the classification (see Figure 1.1 vertical axis), there will be an increasing chance that the accumulation will be commercially developed and the project quantities move to Reserves. For Contingent and Prospective Resources, this is further expressed as a chance of commerciality, Pc, which incorporates the following underlying chance component(s):
A. The chance that the potential accumulation will result in the discovery of a significant quantity of petroleum, which is called the “chance of geologic discovery,” Pg.
B. Once discovered, the chance that the known accumulation will be commercially developed is called the “chance of development,” Pd.
220.127.116.11 There must be a high degree of certainty in the chance of commerciality, Pc, for Reserves to be assigned; for Contingent Resources, Pc = Pd; and for Prospective Resources, Pc is the product of Pg and Pd.
18.104.22.168 Contingent and Prospective Resources can have different project scopes (e.g., well count, development spacing, and facility size) as development uncertainties and project definition mature.
22.214.171.124 Project Maturity Sub-Classes
126.96.36.199.1 As Figure 2.1 illustrates, development projects and associated recoverable quantities may be sub- classified according to project maturity levels and the associated actions (i.e., business decisions) required to move a project toward commercial production.
188.8.131.52.2. Maturity terminology and definitions for each project maturity class and sub-class are provided in Table I. This approach supports the management of portfolios of opportunities at various stages of exploration, appraisal, and development. Reserve sub-classes must achieve commerciality while Contingent and Prospective Resources sub-classes may be supplemented by associated quantitative estimates of chance of commerciality to mature.
184.108.40.206.3 Resources sub-class maturation is based on those actions that progress a project through final approvals to implementation and initiation of production and product sales. The boundaries between different levels of project maturity are frequently referred to as project “decision gates.”
220.127.116.11.4 Projects that are classified as Reserves must meet the criteria as listed in Section 2.1.2, Determination of Commerciality. Projects sub-classified as Justified for Development are agreed upon by the managing entity and partners as commercially viable and have support to advance the project, which includes a firm intent to proceed with development. All participating entities have agreed to the project and there are no known contingencies to the project from any official entity that will have to formally approve the project.
18.104.22.168.5 Justified for Development Reserves are reclassified to Approved for Development after the FID has been made. Projects should not remain in the Justified for Development sub-class for extended time periods without positive indications that all required approvals are expected to be obtained without undue delay. If there is no longer the reasonable expectation of project execution (i.e., historical track record of execution, project progress), the project shall be reclassified as Contingent Resources.
22.214.171.124.6 Projects classified as Contingent Resources have their sub-classes aligned with the entity’s plan to manage its portfolio of projects. Thus, projects on known accumulations that are actively being studied, undergoing feasibility review, and have planned near-term operations (e.g., drilling) are placed in Contingent Resources Development Pending, while those that do not meet this test are placed into either Contingent Resources On Hold, Unclarified, or Not Viable.
126.96.36.199.7 Where commercial factors change and there is a significant risk that a project with Reserves will no longer proceed, the project shall be reclassified as Contingent Resources.
188.8.131.52.8 For Contingent Resources, evaluators should focus on gathering data and performing analyses to clarify and then mitigate those key conditions or contingencies that prevent commercial development. Note that the Contingent Resources sub-classes described above and shown in Figure 2.1 are recommended; however, entities are at liberty to introduce additional sub-classes that align with project management goals.
184.108.40.206.9 For Prospective Resources, potential accumulations may mature from Play, to Lead and then to Prospect based on the ability to identify potentially commercially viable exploration projects. The Prospective Resources are evaluated according to chance of geologic discovery, Pg, and chance of development, Pd, which together determine the chance of commerciality, Pc. Commercially recoverable quantities under appropriate development projects are then estimated. The decision at each exploration phase is whether to undertake further data acquisition and/or studies designed to move the Play through to a drillable Prospect with a project description range commensurate with the Prospective Resources sub- class.
220.127.116.11 Reserves Status
18.104.22.168.1 Once projects satisfy commercial maturity (criteria given in Table 1), the associated quantities are classified as Reserves. These quantities may be allocated to the following subdivisions based on the funding and operational status of wells and associated facilities within the reservoir development plan (Table 2 provides detailed definitions and guidelines):
A. Developed Reserves are quantities expected to be recovered from existing wells and facilities.
1. Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.
2. Developed Non-Producing Reserves include shut-in and behind-pipe reserves with minor costs to access.
B. Undeveloped Reserves are quantities expected to be recovered through future significant investments.
22.214.171.124.2 The distinction between the “minor costs to access” Developed Non-Producing Reserves and the “significant investment” needed to develop Undeveloped Reserves requires the judgment of the evaluator taking into account the cost environment. A significant investment would be a relatively large expenditure when compared to the cost of drilling and completing a new well. A minor cost would be a lower expenditure when compared to the cost of drilling and completing a new well.
126.96.36.199.3 Once a project passes the commercial assessment and achieves Reserves status, it is then included with all other Reserves projects of the same category in the same field for estimating combined future production and applying the economic limit test (see Section 3.1, Assessment of Commerciality).
188.8.131.52.4 Where Reserves remain Undeveloped beyond a reasonable time-frame or have remained Undeveloped owing to postponements, evaluations should be critically reviewed to document reasons for the delay in initiating development and to justify retaining these quantities within the Reserves class. While there are specific circumstances where a longer delay (see Section 2.1.2, Determination of Commerciality) is justified, a reasonable time-frame to commence the project is generally considered to be less than five years from the initial classification date.
184.108.40.206.5 Development and Production status are of significant importance for project portfolio management and financials. The Reserves status concept of Developed and Undeveloped status is based on the funding and operational status of wells and producing facilities within the development project. These status designations are applicable throughout the full range of Reserves uncertainty categories (1P, 2P, and 3P or Proved, Probable, and Possible). Even those projects that are Developed and On Production should have remaining uncertainty in recoverable quantities.
220.127.116.11 Economic Status
18.104.22.168.1 Projects may be further characterized by economic status. All projects classified as Reserves must be commercial under defined conditions (see Section 3.1, Assessment of Commerciality Assessment). Based on assumptions regarding future conditions and the impact on ultimate economic viability, projects currently classified as Contingent Resources may be broadly divided into two groups:
A. Economically Viable Contingent Resources are those quantities associated with technically feasible projects where cash flows are positive under reasonably forecasted conditions but are not Reserves because it does not meet the commercial criteria defined in Section 2.1.2.
B. Economically Not Viable Contingent Resources are those quantities for which development projects are not expected to yield positive cash flows under reasonable forecast conditions.
22.214.171.124.2 The best estimate (or P50) production forecast is typically used for the economic evaluation for the commercial assessment of the project. The low case, when used as the primary case for a project decision, may be used to determine project economics. The economic evaluation of the project high case alone is not permitted to be used in the determination of the project’s commerciality.
126.96.36.199.3 For Reserves, the best estimate production forecast reflects a specific development scenario recovery process, a certain number and type of wells, facilities, and infrastructure.
188.8.131.52.4 The project’s low-case scenario is tested to ensure it is economic, which is required for Proved Reserves to exist (see Section 2.2.2, Category Definitions and Guidelines). It is recommended to evaluate the low case and the high case (which will quantify the 3P Reserves) to convey the project downside risk and upside potential. The project development scenarios may vary in the number and type of wells, facilities, and infrastructure in Contingent Resources, but to recognize Reserves, there must exist the reasonable expectation to develop the project for the best estimate case.
184.108.40.206.5 The economic status may be identified independently of, or applied in combination with, project maturity sub-classification to more completely describe the project. Economic status is not the only qualifier that allows defining Contingent or Prospective Resources sub-classes. Within Contingent Resources, applying the project status to decision gates (and/or incorporating them in a plan to execute) more appropriately defines whether the project is placed into the sub-class of either Development Pending versus On Hold, Not Viable, or Unclarified.
220.127.116.11.6 Where evaluations are incomplete and it is premature to clearly define the associated cash flows, it is acceptable to note that the project economic status is “undetermined.”
2.2 Resources Categorization
The horizontal axis in the resources classification in Figure 1.1 defines the range of uncertainty in estimates of the quantities of recoverable, or potentially recoverable, petroleum associated with a project or group of projects. These estimates include the uncertainty components as follows:
A. The total petroleum remaining within the accumulation (in-place resources).
B. The technical uncertainty in the portion of the total petroleum that can be recovered by applying a defined development project or projects (i.e., the technology applied).
C. Known variations in the commercial terms that may impact the quantities recovered and sold (e.g., market availability; contractual changes, such as production rate tiers or product quality specifications) are part of project’s scope and are included in the horizontal axis, while the chance of satisfying the commercial terms is reflected in the classification (vertical axis).
The uncertainty in a project’s recoverable quantities is reflected by the 1P, 2P, 3P, Proved (P1), Probable (P2), Possible (P3), 1C, 2C, 3C, C1, C2, and C3; or 1U, 2U, and 3U resources categories. The commercial chance of success is associated with resources classes or sub-classes and not with the resources categories reflecting the range of recoverable quantities.
There must be a single set of defined conditions applied for resource categorization. Use of different commercial assumptions for categorizing quantities is referred to as “split conditions” and are not allowed. Frequently, an entity will conduct project evaluation sensitivities to understand potential implications when making project selection decisions. Such sensitivities may be fully aligned to resource categories or may use single parameters, groups of parameters, or variances in the defined conditions.
Moreover, a single project is uniquely assigned to a sub-class along with its uncertainty range. For example, a project cannot have quantities classified in both Contingent Resources and Reserves, for instance as 1C, 2P, and 3P. This is referred to as “split classification.”
2.2.1 Range of Uncertainty
18.104.22.168 Uncertainty is inherent in a project’s resources estimation and is communicated in PRMS by reporting a range of category outcomes. The range of uncertainty of the recoverable and/or potentially
recoverable quantities may be represented by either deterministic scenarios or by a probability distribution (see Section 4.2, Resources Assessment Methods).
When the range of uncertainty is represented by a probability distribution, a low, best, and high estimate shall be provided such that:
A. There should be at least a 90% probability (P90) that the quantities actually recovered will equal or exceed the low estimate.
B. There should be at least a 50% probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
C. There should be at least a 10% probability (P10) that the quantities actually recovered will equal or exceed the high estimate.
In some projects, the range of uncertainty may be limited, and the three scenarios may result in resources estimates that are not significantly different. In these situations, a single value estimate maybe appropriate to describe the expected result.
When using the deterministic scenario method, typically there should also be low, best, and high estimates, where such estimates are based on qualitative assessments of relative uncertainty using consistent interpretation guidelines. Under the deterministic incremental method, quantities for each confidence segment are estimated discretely (see Section 2.2.2, Category Definitions and Guidelines).
Project resources are initially estimated using the above uncertainty range forecasts that incorporate the subsurface elements together with technical constraints related to wells and facilities. The technical forecasts then have additional commercial criteria applied (e.g., economics and license cutoffs are the most common) to estimate the entitlement quantities attributed and the resources classification status: Reserves, Contingent Resources, and Prospective Resources.
While there may be significant chance that sub-commercial and undiscovered accumulations will not achieve commercial production, it is useful to consider the range of potentially recoverable quantities independent of such likelihood when considering what resources class to assign the project quantities.
2.2.2 Category Definitions and Guidelines
Evaluators may assess recoverable quantities and categorize results by uncertainty using the deterministic incremental method, the deterministic scenario (cumulative) method, geostatistical methods, or probabilistic methods (see Section 4.2, Resources Assessment Methods). Also, combinations of these methods may be used.
Use of consistent terminology (Figures 1.1 and 2.1) promotes clarity in communication of evaluation results. For Reserves, the general cumulative terms low/best/high forecasts are used to estimate the resulting 1P/2P/3P quantities, respectively. The associated incremental quantities are termed Proved (P1), Probable (P2) and Possible (P3). Reserves are a subset of, and must be viewed within the context of, the complete resources classification system. While the categorization criteria are proposed specifically for Reserves, in most cases, the criteria can be equally applied to Contingent and Prospective Resources. Upon satisfying the commercial maturity criteria for discovery and/or development, the project quantities will then move to the appropriate resources sub-class. Table 3 provides criteria for the Reserves categories determination.
For Contingent Resources, the general cumulative terms low/best/high estimates are used to estimate the resulting 1C/2C/3C quantities, respectively. The terms C1, C2, and C3 are defined for incremental quantities of Contingent Resources.
For Prospective Resources, the general cumulative terms low/best/high estimates also apply and are used to estimate the resulting 1U/2U/3U quantities. No specific terms are defined for incremental quantities within Prospective Resources.
Quantities in different classes and sub-classes cannot be aggregated without considering the varying degrees of technical uncertainty and commercial likelihood involved with the classification(s) and without considering the degree of dependency between them (see Section 4.2.1, Aggregating Resources Classes).
Without new technical information, there should be no change in the distribution of technically recoverable resources and the categorization boundaries when conditions are satisfied to reclassify a project from Contingent Resources to Reserves.
All evaluations require application of a consistent set of forecast conditions, including assumed future costs and prices, for both classification of projects and categorization of estimated quantities recovered by each project (see Section 3.1, Assessment of Commerciality).
Tables 1, 2, and 3 present category definitions and provide guidelines designed to promote consistency in resources assessments. The following summarize the definitions for each Reserves category in terms of both the deterministic incremental method and the deterministic scenario method, and also provides the criteria if probabilistic methods are applied. For all methods (incremental, scenario, or probabilistic), low, best and high estimate technical forecasts are prepared at an effective date (unless justified otherwise), then tested to validate the commercial criteria, and truncated as applicable for determination of Reserves quantities.
A. Proved Reserves are those quantities of Petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under defined technical and commercial conditions. If deterministic methods are used, the term “reasonable certainty” is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.
B. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate.
C. Possible Reserves are those additional Reserves that analysis of geoscience and engineering data suggest are less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P) Reserves, which is equivalent to the high-estimate scenario. When probabilistic methods are used, there should be at least a 10% probability that the actual quantities recovered will equal or exceed the 3P estimate. Possible Reserves that are located outside of
the 2P area (not upside quantities to the 2P scenario) may exist only when the commercial and technical maturity criteria have been met (that incorporate the Possible development scope). Stand- alone Possible Reserves must reference a commercial 2P project (e.g., a lease adjacent to the
commercial project that may be owned by a separate entity), otherwise stand-alone Possible is not permitted.
One, but not the sole, criterion for qualifying discovered resources and to categorize the project’s range of its low/best/high or P90/P50/P10 estimates to either 1C/2C/3C or 1P/2P/3P is the distance away from known productive area(s) defined by the geoscience confidence in the subsurface.
A conservative (low-case) estimate may be required to support financing. However, for project justification, it is generally the best-estimate Reserves or Resources quantity that passes qualification because it is considered the most realistic assessment of a project’s recoverable quantities. The best estimate is generally considered to represent the sum of Proved and Probable estimates (2P) for Reserves, or 2C when Contingent Resources are cited, when aggregating a field, multiple fields, or an entity’s resources.
It should be noted that under the deterministic incremental method, discrete estimates are made for each category and should not be aggregated without due consideration of associated confidence. Results from the deterministic scenario, deterministic incremental, geostatistical and probabilistic methods applied to the same project should give comparable results (see Section 4.2, Resources Assessment Methods).
If material differences exist between the results of different methods, the evaluator should be prepared to explain these differences.
2.3 Incremental Projects
The initial resources assessment is based on application of a defined initial development project, even extending into Prospective Resources. Incremental projects are designed to either increase recovery efficiency, reduce costs, or accelerate production through either maintenance of or changes to wells, completions, or facilities or through infill drilling or by means of improved recovery. Such projects are classified according to the resources classification framework (Figure 1.1), with preference for applying project maturity sub-classes (Figure 2.1). Related incremental quantities are similarly categorized on the range of uncertainty of recovery. The projected recovery change can be included in Reserves if the degree of commitment is such that the project has achieved commercial maturity (See Section 2.1.2, Determination of Commerciality). The quantity of such incremental recovery must be supported by technical evidence to justify the relative confidence in the resources category assigned.
An incremental project must have a defined development plan. A development plan may include projects targeting the entire field (or even multiple, linked fields), reservoirs, or single wells. Each incremental project will have its own planned timing for execution and resource quantities attributed to the project. Development plans may also include appraisal projects that will lead to subsequent project decisions based on appraisal outcomes.
22.214.171.124 Circumstances when development will be significantly delayed and where it is considered that Reserves are still justified should be clearly documented. If there is no longer the reasonable expectation of project execution (i.e., historical track record of execution, project progress), forecast project incremental recoveries are to be reclassified as Contingent Resources (see Section 2.1.2, Determination of Commerciality).
2.3.1 Workovers, Treatments, and Changes of Equipment
Incremental recovery associated with a future workover, treatment (including hydraulic fracturing stimulation), re-treatment, changes to existing equipment, or other mechanical procedures where such projects have routinely been successful in analogous reservoirs may be classified as Developed Reserves, Undeveloped Reserves, or Contingent Resources, depending on the associated costs required (see Section 126.96.36.199, Reserves Status) and the status of the project’s commercial maturity elements.
Facilities that are either beyond their operational life, placed out of service, or removed from service cannot be associated with Reserves recognition. When required facilities become unavailable or out of service for longer than a year, it may be necessary to reclassify the Developed Reserves to either Undeveloped Reserves or Contingent Resources. A project that includes facility replacement or restoration of operational usefulness must be identified, commensurate with the resources classification.
Reduction in the backpressure through compression can increase the portion of in-place gas that can be commercially produced and thus included in resources estimates. If the eventual installation of compression meets commercial maturity requirements, the incremental recovery is included in either
Undeveloped Reserves or Developed Reserves, depending on the investment on meeting the Developed or Undeveloped classification criteria. However, if the cost to implement compression is not significant, relative to the cost of one new well in the field, or there is reasonable expectation that compression will be implemented by a third party in a common sales line beyond the reference point, the incremental quantities may be classified as Developed Reserves. If compression facilities were not part of the original approved development plan and such costs are significant, it should be treated as a separate project subject to normal project maturity criteria.
2.3.3 Infill Drilling
Technical and commercial analyses may support drilling additional producing wells to reduce the well spacing of the initial development plan, subject to government regulations. Infill drilling may have the combined effect of increasing recovery and accelerating production. Only the incremental recovery
(i.e. recovery from infill wells less the recovery difference in earlier wells) can be considered as additional Reserves for the project; this incremental recovery may need to be reallocated.
2.3.4 Improved Recovery
Improved recovery is the additional petroleum obtained, beyond primary recovery, from naturally occurring reservoirs by supplementing the natural reservoir energy. It includes secondary recovery (e.g., waterflooding and pressure maintenance), tertiary recovery processes (thermal, miscible gas injection, chemical injection, and other types), and any other means of supplementing natural reservoir recovery processes.
Improved recovery projects must meet the same Reserves technical and commercial maturity criteria as primary recovery projects.
The judgment on commerciality is based on pilot project results within the subject reservoir or by comparison to a reservoir with analogous rock and fluid properties and where a similar established improved recovery project has been successfully applied.
Incremental recoveries through improved recovery methods that have yet to be established through routine, commercially successful applications are included as Reserves only after a favorable production response from the subject reservoir from either (a) a representative pilot or (b) an installed portion of the project, where the response provides support for the analysis on which the project is based. The improved recovery project’s resources will remain classified as Contingent Resources Development Pending until the pilot has demonstrated both technical and commercial feasibility and the full project passes the Justified for Development “decision gate.”
2.4 Unconventional Resources
The types of in-place petroleum resources defined as conventional and unconventional may require different evaluation approaches and/or extraction methods. However, the PRMS resources definitions,
together with the classification system, apply to all types of petroleum accumulations regardless of the in- place characteristics, extraction method applied, or degree of processing required.
A. Conventional resources exist in porous and permeable rock with pressure equilibrium. The PIIP is trapped in discrete accumulations related to a local geological structure feature and/or stratigraphic condition. Each conventional accumulation is typically bounded by a down dip contact with an aquifer, as its position is controlled by hydrodynamic interactions between buoyancy of petroleum in water versus capillary force. The petroleum is recovered through wellbores and typically requires minimal processing before sale.
B. Unconventional resources exist in petroleum accumulations that are pervasive throughout a large area and are not significantly affected by hydrodynamic influences (also called “continuous-type deposit”). Usually there is not an obvious structural or stratigraphic trap. Examples include coalbed methane (CBM), basin-centered gas (low permeability), tight gas and tight oil (low permeability), gas hydrates, natural bitumen (very high viscosity oil), and oil shale (kerogen) deposits. Note
that shale gas and shale oil are sub-types of tight gas and tight oil where the lithologies are predominantly shales or siltstones. These accumulations lack the porosity and permeability of conventional reservoirs required to flow without stimulation at economic rates. Typically, such accumulations require specialized extraction technology (e.g., dewatering of CBM, hydraulic fracturing stimulation for tight gas and tight oil, steam and/or solvents to mobilize natural bitumen for in-situ recovery, and in some cases, surface mining of oil sands). Moreover, the extracted petroleum may require significant processing before sale (e.g., bitumen upgraders).
For unconventional petroleum accumulations, reliance on continuous water contacts and pressure gradient analysis to interpret the extent of recoverable petroleum is not possible. Thus, there is typically
a need for increased spatial sampling density to define uncertainty of in-place quantities, variations in reservoir and hydrocarbon quality, and to support design of specialized mining or in-situ extraction programs. In addition, unconventional resources typically require different evaluation techniques than conventional resources.
Extrapolation of reservoir presence or productivity beyond a control point within a resources accumulation must not be assumed unless there is technical evidence to support it. Therefore, extrapolation beyond the immediate vicinity of a control point should be limited unless there is clear engineering and/or geoscience evidence to show otherwise.
The extent of the discovery within a pervasive accumulation is based on the evaluator’s reasonable confidence based on distances from existing experience, otherwise quantities remain as undiscovered. Where log and core data and nearby producing analogs provide evidence of potential economic viability, a successful well test may not be required to assign Contingent Resources. Pilot projects may be needed to define Reserves, which requires further evaluation of technical and commercial viability.
A fundamental characteristic of engagement in a repetitive task is that it may improve performance over time. Attempts to quantify this improvement gave rise to the concept of the manufacturing progress function commonly called the “learning curve.” The learning curve is characterized by a decrease in time and/or costs, usually in the early stages of a project when processes are being optimized. At that time, each new improvement may be significant. As the project matures, further improvements in time or cost savings are typically less substantial. In oil and gas developments with high well counts and a continuous program of activity (multi-year), the use of a learning curve within a resources evaluation may be justified to predict improvements in either the time taken to carry out the activity, the cost to do so, or both. While each development project is unique, review of analogs can provide guidance on such predictions and the range of associated uncertainty in the resulting recoverable resources estimates (see also Section 3.1.2 Economic Criteria).
3.0 Evaluation and Reporting Guidelines
188.8.131.52 The following guidelines are provided to promote consistency in project evaluations and reporting. “Reporting” in this document refers to the presentation of evaluation results within the entity conducting the evaluation and should not be construed as replacing requirements for public disclosures established by regulatory and/or other government agencies or any current or future associated accounting standards.
184.108.40.206 Reserves and resources evaluations are based on a set of defined conditions that are used to classify and categorize a project’s expected recoverable quantities. The defined conditions include the factors that impact commerciality, such as decision hurdle rates; commodity prices; operating and capital costs; technical subsurface parameters; marketing, sales route(s); environmental, governmental, legal, and social factors; and timing issues. These factors are forecast for the project over time, and evaluators must clearly identify and document the assumptions used in the evaluation because these assumptions can directly impact the project quantities eligible for classification as Reserves or Resources. A project with Contingent Resources may not yet have all defined conditions addressed, and reasonable assumptions should be made and documented.
220.127.116.11 Hydrocarbon evaluations recognize production and transportation practices that involve methods of extraction other than through the flow of fluids from wells to surface facilities, such as surface mining of bitumen or in-situ conversion processes.
3.1 Assessment of Commerciality
18.104.22.168 Commercial assessments are conducted on a project basis and are based on the entity’s view of future conditions. The forecast commercial conditions, technical feasibility, and the entity’s decision to
commit to the project are several of the key elements that underpin the project’s resources classification. Commercial conditions include, but are not limited to, assumptions of an entity’s investment hurdle criteria; financial conditions (e.g., costs, prices, fiscal terms, taxes); partners’ investment decision(s); organization capabilities; and marketing, legal, environmental, social, and governmental factors. Project value may
be assessed in several ways (e.g., cash flow analysis, historical costs, comparative market values, key economic parameters) (see Section 2.1.2, Determination of Commerciality). The guidelines herein apply only to assessments based on cash-flow analysis. Moreover, modifying factors that may additionally influence investment decisions, such as contractual or political risks, should be recognized so the entity may address these factors if they are not included in the project analysis.
3.1.1 Net Cash-Flow Evaluation
22.214.171.124 Project-based resource economic evaluations are based on estimates of future production and the associated net cash-flow schedules for each project as of an effective date. These net cash flows should be discounted using a defined discount rate, and the sum of the future discounted cash flows is termed the net present value (NPV) of the project. The calculation shall be based upon an appropriately defined reference point (see Section 3.2.1, Reference Point) and should reflect the following:
A. The forecast production quantities over identified time periods.
B. The estimated costs and schedule associated with the project to develop, recover, and produce the quantities to the reference point, including abandonment, decommissioning, and restoration (ADR) costs, based on the entity’s view of the expected future costs.
C. The estimated revenues from the quantities of production based on the evaluator’s view of the prices expected to apply to the respective commodities in future periods, taking into account any sales contracts or price hedges specific to a property, including that portion of the costs and revenues accruing to the entity.
D. Future projected production- and revenue-related taxes and royalties expected to be paid by the
E. A project life that is limited to the period of economic interest or a reasonably certain estimate of the life expectancy of the project, which is typically truncated by the earliest occurrence of either technical, license, or economic limit.
F. The application of an appropriate discount rate applicable to the entity at the time of the evaluation.
3.1.2 Economic Criteria
126.96.36.199 Economic determination of a project is tested assuming a zero percent discount rate (i.e., undiscounted). A project with a positive undiscounted cumulative net cash flow is considered economic. Production from the project is economic when the revenue attributable to the entity interest from production exceeds the cost of operation. A project’s production is economically producible when the net revenue from an ongoing producing project exceeds the net expenses attributable to a certain entity’s interest. The ADR costs are excluded from the economically producibility determination. A project is commercial when it is economic and it meets the criteria discussed in Section 2.1.2.
188.8.131.52 Economic viability is tested by applying a forecast case that evaluates cash-flow estimates based on an entity’s forecasted economic scenario conditions (including costs and product price schedules, inflation indexes, and market factors). The forecast made by the evaluator should reflect and document assumptions the entity assesses as reasonable to exist throughout the life of the project. Inflation, deflation, or market adjustments may be made to forecast costs and revenues.
184.108.40.206 Forecasts based solely on current economic conditions are estimated using an average of those conditions (including historical prices and costs) during a specified period. The default period for averaging prices and costs is one year. However, if a step change has occurred within the previous 12-month period, the use of a shorter period reflecting the step change must be justified. In developments with high well counts and a continuous program of activity, the use of a learning curve within a resources evaluation may be justified to predict improvements in either time taken to carry out the activity, the cost to do so, or both, if confirmed by operational evidence and documented by the evaluator. The confidence in the ability to deliver such savings must be considered in developing the range of uncertainty in production and NPV estimates.
220.127.116.11 All costs, including future ADR liabilities, are included in the project economic analysis unless specifically excluded by contractual terms. ADR is not included in determining the economic producibility or for determining the point the project reaches the economic limit (see Section 3.1.3, Economic Limit). ADR costs may also be reported for other purposes, such as for a property sale/acquisition evaluation, future field planning, accounting report of future obligations, or as appropriate to the circumstances for which the resource evaluation is conducted. The entity is responsible for providing the evaluator with documentation to ensure that funds are available to cover forecast costs and ADR liabilities in line with the contractual obligations.
18.104.22.168 Figure 3.1 illustrates a net cash-flow profile for a simple project. The project’s cumulative net cash flow exceeds the ADR liability, thereby satisfying the economic viability required to consider a project’s quantities as Reserves. The project’s economic production (i.e., economic producibility) is truncated at the economic limit when the maximum cumulative net cash flow is achieved, before consideration of ADR.
22.214.171.124 Alternative economic scenarios may also be considered in the decision process and, in some cases, may supplement reporting requirements. Evaluators may examine a constant case in which current economic conditions are held constant without inflation or deflation throughout the project life.
126.96.36.199 Evaluations may also be modified to accommodate criteria regarding external disclosures imposed by regulatory agencies. For example, these criteria may include a specific requirement that, if the recovery were confined to the Proved Reserves estimate, the constant case should still generate a positive cash flow. External reporting requirements may also specify alternative guidance on the definition of current conditions or defined criteria with which to evaluate Reserves.
188.8.131.52 There may be circumstances in which the project meets criteria to be classified as Reserves using
the best estimate (2P) forecast but the low case is not economic and fails to qualify for Proved Reserves.
In this circumstance, the entity may record 2P and 3P estimates and no Proved Reserves. As costs are incurred in future years (i.e. become sunk costs) and development proceeds, the low estimate may
eventually become economic and be reported as Proved Reserves. Some entities, according to internal policy or to satisfy regulatory reporting requirements, will defer reclassifying projects from Contingent Resources to Reserves until the low estimate case is economic.
3.1.3 Economic Limit
184.108.40.206 The economic limit is defined as the production rate at the time when the maximum cumulative net cash flow occurs for a project. The entity’s entitlement production share, and thus net entitlement resources, includes those produced quantities up to the earliest truncation occurrence of either technical, license, or economic limit.
220.127.116.11 In this evaluation, operating costs should include only those costs that are incremental to the project for which the economic limit is being calculated (i.e., only those cash costs that will actually be eliminated
if project production ceases). Operating costs should include fixed property-specific overhead charges if these are actual incremental costs attributable to the project and any production and property taxes, but for purposes of calculating the economic limit, should exclude depreciation, ADR costs, and income tax as well as any overhead that is not required to operate the subject property. Operating costs may be reduced, and thus project life extended, by various cost-reduction and revenue-enhancement approaches, such as sharing of production facilities, pooling maintenance contracts, or marketing of associated non- hydrocarbons (see Section 3.2.4, Associated Non-Hydrocarbon Components).
18.104.22.168 For a given project, no future development costs can exist beyond the economic limit date. ADR costs are not included in the economic limit calculations, even though they may be reported for other purposes.
22.214.171.124 Interim negative project net cash flows may be accommodated in periods of development capital spending, low product prices, or major operational problems provided that the longer-term cumulative net- cash-flow forecast determined from the effective date becomes positive. These periods of negative cash flow will qualify as Reserves if the following positive periods more than offset the negative.
126.96.36.199 In some situations, entities may choose to initiate production below or continue production past the economic limit. Production must be economic to be considered as Reserves, and the intent to or act of
producing sub-economic resources does not confer Reserves status to those quantities. In these instances, the production represents a movement from Contingent Resources to Production. However, once produced such quantities can be shown in the reconciliation process for production and revenue accounting as a positive technical revision to Reserves. No future sub-economic production can be Reserves.
3.2 Production Measurement
188.8.131.52 In general, all petroleum production from the well or mine is measured to allow for the evaluation of the extracted quantities’ recovery efficiency in relation to the PIIP. The marketable product, as measured according to delivery specifications at a defined reference point, provides the basis for sales production quantities. Other quantities that are not sales may not be as rigorously measured at the reference point(s) but are as important to take into account.
184.108.40.206 The operational issues in this section should be considered in defining and measuring production. While referenced specifically to Reserves, the same logic would be applied to projects forecast to develop Contingent and Prospective Resources conditional on discovery and development.
3.2.1 Reference Point
220.127.116.11 Reference point is a defined location within a petroleum extraction and processing operation where the produced quantities are measured or assessed. A reference point is typically the point of sale to third parties or where custody is transferred to the entity’s midstream or downstream operations. Sales
production and estimated Reserves are normally measured and reported in terms of quantities crossing this point over the period of interest.
18.104.22.168 The reference point may be defined by relevant accounting regulations to ensure that the reference point is the same for both the measurement of reported sales quantities and for the accounting treatment of sales revenues. This ensures that sales quantities are stated according to the delivery specifications at a
defined price. In integrated projects, the appropriate price at the reference point may need to be determined
using a netback calculation.
22.214.171.124 Sales quantities are equal to raw production less non-sales quantities (those quantities produced at the wellhead but not available for sales at the reference point). Non-sales quantities include petroleum consumed as lease fuel, flared, or lost in processing, plus non-hydrocarbons that must be removed before
sale (including water). Each of these may be allocated using separate reference points but, when combined with sales, should sum to raw production. Sales quantities may need to be adjusted to exclude components added in processing but not derived from raw production. Raw production measurements are necessary and form the basis of many engineering calculations (e.g., material balance and production performance analysis) based on total reservoir voidage. Substances added to the production stream for various reasons, such as diluents added to enhance flow properties, are not to be counted as Production, sales quantities, Reserves, or Resources.
3.2.2 Consumed in Operations (CiO)
126.96.36.199 CiO (also termed lease fuel) is that portion of produced petroleum consumed as fuel in production or plant operations before the reference point.
188.8.131.52 Although Reserves are recommended to be sales quantities (see Section 1.1), the CiO quantities may be included as Reserves or Resources; when included these quantities must be stated and recorded separately from the sales portion. Entitlement rights for the fuel usage must be in place to recognize CiO as Reserves. Flared gas and oil and other petroleum losses must not be included in either product sales or Reserves but once produced are included in produced quantities to account for total reservoir voidage.
184.108.40.206 The CiO quantities must not be included in the project economics because there is neither a cost incurred for purchase nor a revenue stream to recognize a sales quantity. The CiO fuel replaces the requirement to purchase fuel from external parties and results in lower operating costs. All actual costs for facilities-related equipment, the costs of the operations , and any purchased fuel must be included as an operating expense in the project economics.
3.2.3 Wet or Dry Natural Gas
220.127.116.11 The Reserves for wet or dry natural gas should be considered in the context of the specifications of the gas at the agreed reference point. Thus, for gas that is sold as wet gas, the quantity of the wet gas would be reported, and there would be no reporting of any associated hydrocarbon liquids extracted
downstream of the reference point. It would be expected that the corresponding enhanced value of the wet
gas would be reflected in the sales price achieved for such gas.
18.104.22.168 When liquids are extracted from the gas before sale and the gas is sold in dry condition, then the dry gas quantity and the extracted liquid quantities, whether condensate and/or natural gas liquids (NGLs), must be accounted for separately in resources assessments at the agreed reference point(s).
3.2.4 Associated Non-Hydrocarbon Components
22.214.171.124 In the event that non-hydrocarbon components are associated with production, the reported quantities should reflect the agreed specifications of the petroleum product at the reference point. Correspondingly, the accounts will reflect the value of the petroleum product at the reference point. If it is required to remove all or a portion of non-hydrocarbons before delivery, the Reserves and Production should reflect only the marketable product recognized at the reference point.
126.96.36.199 Even if an associated non-hydrocarbon component, such as helium or sulfur, removed before the reference point is subsequently separately marketed, these quantities are included in the voidage extraction quantities (e.g., raw production) from the reservoir but are not included in Reserves. The revenue generated by the sale of non-hydrocarbon products may be included in the project’s economic evaluation.
3.2.5 Natural Gas Re-Injection
188.8.131.52 Natural gas production can be re-injected into a reservoir for a number of reasons and under a variety of conditions. Gas can be re-injected into the same reservoir or into other reservoirs located on the same property for recycling, pressure maintenance, miscible injection, or other enhanced oil recovery processes. In cases where the gas has no transfer of ownership and with a development plan that is technically and commercially mature, the gas quantity estimated to be eventually recoverable can be included as Reserves.
184.108.40.206 If injected gas quantities are included as Reserves, these quantities must meet the criteria in the definitions, including the existence of a viable development, transportation, and sales marketing plan. Gas quantities should be reduced for losses associated with the re-injection and subsequent recovery process. Gas quantities injected into a reservoir for gas disposal with no committed plan for recovery are not classified as Reserves. Gas quantities purchased for injection and later recovered are not classified as Reserves.
3.2.6 Underground Natural Gas Storage
220.127.116.11 Natural gas injected into a gas storage reservoir, which will be recovered later (e.g., to meet peak market demand periods) should not be included as Reserves.
18.104.22.168 The gas placed in the storage reservoir may be purchased or may originate from prior native production. It is important to distinguish injected gas from any remaining native recoverable quantities in the reservoir. On commencing gas production, allocation between native gas and injected gas may be subject to local regulatory and accounting rulings. Native gas production would be drawn against the original field Reserves. The uncertainty with respect to original field quantities remains with the native reservoir gas and not the injected gas.
22.214.171.124 There may be occasions in which gas is transferred from one lease or field to another without a sale or custody transfer occurring. In such cases, the re-injected gas could be included with the native reservoir gas as Reserves.
126.96.36.199 The same principles regarding separation of native resources from injected quantities would apply to underground liquid storage.
3.2.7 Mineable Oil Sand
188.8.131.52 Mineable oil sands that meet the criteria listed in Section 2.1.2 can be considered as a potentially economic material and therefore Reserves. Mining operations may result in mined materials being stockpiled rather than processed. Stockpiled mined oil sands should be included in Reserves only when the project to recover and blend the stockpile has achieved technical and commercial maturity. The project’s quantities are not included in Production until measured at the reference point.
3.2.8 Production Balancing
184.108.40.206 Reserves estimates must be adjusted for production withdrawals. This may be a complex accounting process when the allocation of Production among project participants is not aligned with their entitlement to Reserves. Production overlift or underlift can occur in oil production records because participants may need to lift their production in parcel sizes or cargo quantities to suit available shipping schedules agreed upon by the parties. Similarly, an imbalance in gas deliveries can result from the participants having different operating or marketing arrangements that prevent gas quantities sold from being equal to the entitlement share within a given time period.
220.127.116.11 Based on production matching the internal accounts, annual production should generally be equal to the liftings actually made by the entity and not on the production entitlement for the year. However, actual production and entitlements must be reconciled in Reserves assessments. Resulting imbalances must be monitored over time and eventually resolved before project abandonment.
3.2.9 Equivalent Hydrocarbon Conversion
18.104.22.168 The industry sometimes simplifies communication of Reserves, Resources, and Production quantities with the term “barrel of oil equivalent” (BOE). The term allows for consolidation of multiple product types into a single equivalent product. In instances where natural gas is the predominate product, liquids may be converted to gas equivalence (i.e. one thousand cubic feet (MCF) volume = 1 McfGE (MCF gas equivalent)).
22.214.171.124 Oil, condensate, bitumen and synthetic crude oil can be summed together without conversion (i.e., 1 bbl volume = 1 BOE). NGLs may need to be converted, depending on the actual composition. Natural gas must be converted to report on a BOE basis.
126.96.36.199 The presentation of Reserve or Resources quantities should be made in the appropriate units for each individual product type reported (e.g. barrels, cubic meters, metric tonnes, joules, etc.). If BOE’s or McfGE’s are presented, they must be provided as supplementary information to the actual liquid or gas quantities with the conversion factor(s) clearly stated.
3.3 Resources Entitlement and Recognition
188.8.131.52 While assessments are conducted to establish estimates of the total PIIP and that portion recovered by defined projects, the allocation of sales quantities, costs, and revenues impacts the project economics and commerciality. This allocation is governed by the applicable contracts between the mineral lease owners (lessors) and contractors (lessees) and is generally referred to as entitlement.
184.108.40.206 Evaluators must ensure that, to their knowledge, the recoverable resource entitlements from all participating entities sum to the total recoverable resources.
220.127.116.11 The ability for an entity to recognize Reserves and Resources is subject to satisfying certain key elements. These include (a) having an economic interest through the mineral lease or concession agreement (i.e., right to proceeds from sales); (b) exposure to market and technical risk; and (c) the opportunity for reward through participation in exploration, appraisal, and development activities. Given the complexities of some agreements, there may be additional elements that must be considered in determining entitlement and the recognition of Reserves and Resources.
18.104.22.168 For publicly traded companies, securities regulators may set criteria regarding the classes and categories that can be “recognized” in external disclosures. For national interests, the reporting of 100% quantities without concession agreement constraints is typically specified.
22.214.171.124 Royalty refers to a type of entitlement interest in a resources project that is free and clear of the costs and expenses of development and production to the royalty interest owner as opposed to a working interest where an entity has cost exposure. A royalty is commonly retained by a resources owner (lessor/ host) when granting rights to a producer (lessee/contractor) to develop and produce the resources. Depending on the specific terms defining the royalty, the payment obligation may be expressed in monetary terms as a portion of the proceeds of production in-cash or as a right to take a portion of production in-kind. The royalty terms may also provide the option to switch between forms of payment at the discretion of the royalty owner. In either case, royalty quantities must be deducted from the lessee’s entitlement to resources so that only net revenue interest quantities are recognized.
126.96.36.199 In some agreements, production taxes imposed by the host government may be referred to as royalties. These payment obligations are expressed in monetary terms and are typically linked to production rates, quantities produced, cost recovery, the value of production (price sensitive), or the profits derived from it. These payments are not associated with an interest retained by the lessor/host. Thus, such payment obligations are effectively a production tax instead of a royalty. In such cases, the production and underlying resources are controlled by the lessee/contractor who may (subject to contractual terms and/or regulatory guidance) elect to report these obligations as a tax without a corresponding reduction in lessor/ contractor’s entitlement.
188.8.131.52 Conversely, if an entity owns a royalty or equivalent interest of any type in a project, the related quantities can be included in resources entitlements and should not be included in entitlements of others.
3.3.2 Production-Sharing Contract Reserves
184.108.40.206 Production-sharing contracts (PSCs) of various types are used in many countries instead of conventional tax-royalty systems. Under the PSC terms, producers have an entitlement to a portion of the production. This net entitlement, often referred to as entitlement, occurs when a net economic interest is held by an entity and is estimated using a formula based on the contract terms incorporating costs and profits. The terms of the PSC provide the remuneration to the host government/lessor that would be accomplished by the royalty in other agreements.
220.127.116.11 Ownership of the production is retained by the host government; however, the contractor may receive title to the prescribed share of the quantities when produced or at point of sale and may claim that share as their Reserves.
18.104.22.168 Risk service contracts (RSCs) are similar to PSCs, but the producers may be paid in cash rather than in production. As with PSCs, the Reserves claimed are based on the entity’s economic interest as risk is borne by the contractor. Care needs to be taken to distinguish between an RSC and a pure service contract. Reserves can be claimed in an RSC, whereas no Reserves can be claimed for pure service contracts because there is insufficient exposure to petroleum exploration, development, and market risks and the producers act as contractors.
22.214.171.124 Unlike conventional tax-royalty agreements, the cost recovery system in production-sharing, risk- service, and other related contracts typically reduce the production share and hence Reserves entitlement to a contractor in periods of high price and increase quantities in periods of low price. While this ensures cost recovery, it also introduces significant price-related volatility in annual Reserves estimates under cases using a constant case. The terms governing cost recovery in a particular PSC may require special treatment of items such as taxes, overhead, and ADR to determine entitlement.
126.96.36.199 The treatment of taxes and the accounting procedures used can also have a significant impact on
the Reserves recognized and production reported from these contracts.
3.3.3 Contract Extensions or Renewals
188.8.131.52 As production-sharing or other types of agreements approach the specified end date, extensions
may be obtained through contract negotiation, by the exercise of options to extend, or by other means.
184.108.40.206 Reserves cannot be claimed for those quantities that will be produced beyond the expiration date of the current agreement unless there is reasonable expectation that an extension, a renewal, or a new contract will be granted. Such reasonable expectation may be based on the status of renewal negotiations and historical treatment of similar agreements by the license-issuing jurisdiction. Otherwise, forecast production beyond the contract term must be classified as Contingent Resources with an associated reduced chance of commercialization. Moreover, it may not be reasonable to assume that the fiscal terms in a negotiated extension will be similar to existing terms.
220.127.116.11 Similar logic should be applied where gas sales agreements are required to ensure adequate markets. Reserves should not be claimed for quantities that will be produced beyond those specified in the current agreement or that do not have a reasonable expectation to be included in either contract renewals or future agreements.
4.0 Estimating Recoverable Quantities
18.104.22.168 Assuming that projects have been classified according to project maturity, estimation of associated recoverable quantities under a defined project and assignment to uncertainty categories may be based on one or a combination of analytical procedures. Such procedures may be applied using an incremental and/or scenario approach; moreover, the method of assessing relative uncertainty in these estimates of recoverable quantities may employ both deterministic and probabilistic methods.
4.1 Analytical Procedures
22.214.171.124 The analytical procedures for estimating recoverable quantities fall into three broad categories: (a) analogy, (b) volumetric estimates, and (c) performance-based estimates (e.g., material balance, history- matched simulation, decline-curve analysis, and rate-transient analysis. Reservoir simulation may be used in either volumetric or performance-based analyses. Pre- and early post-discovery assessments typically are made with analog field/project data and volumetric estimation. After production commences and production rates and pressure information become available, performance-based methods can be applied. Generally, the range of EUR estimates is expected to decrease as more information (pressure, performance, and PIIP) becomes available, but this is not always the case.
126.96.36.199 In each procedure evaluated under either the deterministic scenario, deterministic incremental, geostatistical, or probabilistic methods, the results are not a single quantity of remaining recoverable petroleum, but rather a range that reflects the underlying uncertainties in both the in-place quantities and the recovery efficiency of the applied development project. By applying consistent guidelines (see Section 2.2, Resources Categorization), evaluators can define remaining recoverable quantities using the approaches listed above. The confidence in assessment results generally increases when the estimates are supported by more than one analytical procedure.
188.8.131.52 Analogs are widely used in resources estimation, particularly in the exploration and early development stages when direct measurement information is limited. The methodology is based on the assumption that the analogous reservoir is comparable to the subject reservoir in regard to reservoir description, fluid properties, and most likely recovery mechanism(s) applied to the project that control the ultimate recovery of petroleum. By selecting appropriate analogs, where performance data of comparable development plans are available, a similar production profile may be forecast. Analogs are frequently applied for aiding in the assessment of economic producibility, production decline characteristics, drainage area, and recovery factor (for primary, secondary, and tertiary methods).
184.108.40.206 Analogous reservoirs, as used in resources assessments, are defined by similarities of features and characteristics that include but are not limited to the following:
A. Reservoir deposition and structure (e.g., lithology, depositional environment, diagenetic history, natural fractures, chemical/mineral composition, geometry, mechanical history, and structural deformation).
B. Petrophysical properties (e.g., net pay and gross thickness, porosity, saturation, permeability, heterogeneity, and net-to-gross ratio).
C. Reservoir conditions (e.g., depth, temperature and pressure, and size of the petroleum accumulation and aquifer).
D. Fluid properties (e.g., original fluid type, composition, density, and viscosity).
E. Drive mechanisms.
F. Development plan (e.g., well spacing, well type and number, completion methods, artificial lift,
development and operating costs, facility type and constraints, and processing).
220.127.116.11 The above list is not exhaustive and the comparative analog characteristics must be relevant to the key characteristics of the project.
18.104.22.168 It is not necessary for all parameters to match to consider a reservoir as an analog. The evaluator should consider the specifics of each application and its suitability in providing insight to assist in the estimation of recoverable resources.
22.214.171.124 Comparison to several analogs, rather than a single analog, often improves the understanding of the range of uncertainty in the estimated recoverable quantities from the subject reservoir. While reservoirs in the same geographic area and of the same geological age typically provide better analogs, such proximity alone may not be the primary consideration. In all cases, evaluators should document the similarities and differences between the analog and the subject reservoir/project. Review of analog reservoir performance is useful in quality assurance of resources assessments at all stages of development.
4.1.2 Volumetric Analysis
126.96.36.199 This procedure uses reservoir rock and fluid properties to calculate PIIP and then estimate that portion that will be recovered by a specific development project. The volumetric estimate may be based on either probabilistic or deterministic approaches. A probabilistic approach is typically applied in the early development stages when data are most limited. As the project matures through development, the evaluation methodology often shifts towards deterministic estimates.
188.8.131.52 The key uncertainties affecting in-place quantities include but are not limited to the following:
A. Reservoir geometry, heterogeneity, compartmentalization, and trap limits that impact gross rock volume.
B. Geological characteristics that define pore volume and petroleum saturation distribution.
C. Position and nature of contacts or limits [e.g., lowest known hydrocarbons (LKH), oil/water contact, gas/water contact (GWC), gas/oil contact, and tilted contact gradient].
D. Combinations of reservoir quality, fluid types, and contacts that control saturation distributions (vertically and horizontally).
184.108.40.206 The gross rock volume of interest is that for the total reservoir. While spatial distribution and reservoir quality impact recovery efficiency, the calculation of in-place petroleum often uses average net- to-gross ratio, porosity, and fluid saturations. In more complex reservoirs, increased well density may be required to confidently evaluate, assess, and categorize resources.
220.127.116.11 Given estimates of the in-place petroleum, the portion that can be recovered by a defined set of wells and operating conditions must then be estimated based on analog field performance and/or modeling/ simulation studies using available reservoir information. Key assumptions must be made regarding reservoir drive mechanisms.
18.104.22.168 The estimates of recoverable quantities must reflect the combined uncertainties in the petroleum in- place and the recovery efficiency of the development project(s) applied to the reservoir.
4.1.3 Material Balance Analysis
22.214.171.124 Material balance methods used to estimate recoverable quantities involve the analysis of pressure behavior as reservoir fluids are withdrawn. In ideal situations, such as depletion-drive gas reservoirs in homogeneous, high-permeability reservoir rocks and where sufficient and high-quality pressure data are available, estimation based on material balance may provide very reliable estimates of ultimate recovery at various abandonment pressures. In complex situations, such as those involving water influx, compartmentalization, multiphase behavior, and multilayered or low-permeability reservoirs, shales or CBM, material balance estimates alone may provide erroneous results. Evaluators should take care to accommodate the complexity of the reservoir and its pressure response to depletion in developing uncertainty profiles for the applied recovery project.
126.96.36.199 Reservoir modeling or reservoir simulation can be considered a more rigorous form of material balance analysis. While such modeling can be a reliable predictor of reservoir behavior under a defined development program, the reliability of input rock properties, reservoir geometry, relative permeability functions, fluid properties, and constraints (e.g., wells, facilities, and export) are critical. Predictive models are most reliable in estimating recoverable quantities when there is sufficient production history to validate the model through history matching.
4.1.4 Production Performance Analysis
188.8.131.52 Analysis of the change in production rate and production fluid ratios versus time and versus cumulative production as reservoir fluids are withdrawn provides useful information to predict ultimate recoverable quantities. In some cases, before production decline rates become apparent, trends in performance indicators such as gas/oil ratio, water/oil ratio, condensate/gas ratio, and bottomhole or flowing pressures can be extrapolated to economic limit conditions to estimate Reserves.
184.108.40.206 Reliable results require a sufficient period of stable operating conditions after wells in a reservoir have established drainage areas. In estimating recoverable quantities, evaluators must consider additional factors affecting production performance behavior, such as variable reservoir and fluid properties, transient versus stabilized flow, changes in operating conditions, interference effects, and depletion mechanisms. In early stages of depletion, there may be significant uncertainty in both the ultimate performance profile and the other factors (e.g., operational, regulatory, contractual) factors that impact abandonment rate. Such uncertainties should be reflected in the reserves categorization.
220.127.116.11 For mature reservoirs, the future production forecast may be sufficiently well defined that the remaining uncertainty in the technical profile is not significant; in such cases, the best estimate 2P scenario may be justifiable to also use for the 1P and 3P production forecasts. Other uncertainties (e.g., operational, regulatory, contractual) that will impact the abandonment rate may still exist, however, and these should be accommodated in the reserves categorization uncertainty range.
18.104.22.168 In very low-permeability reservoirs (e.g., unconventional reservoirs), care should be taken in the production performance analyses because the lengthy period of transient flow and complex production physics can make analyses very difficult.
4.2 Resources Assessment Methods
22.214.171.124 Regardless of the analytical procedures used, the goal is to communicate the range of uncertainty in the recoverable resources. An underlying principle is that the reliability of the estimates depends on the quantity and quality of the source data.
126.96.36.199 In all methods, as confidence away from a known productive area decreases, the uncertainty in the ability to estimate recoverable quantities increases. In assessing the range of uncertainty in recovery from a project, the evaluator should consider the uncertainty in all components of a project, including that forecast from existing and future wells. Additionally, an increasing diversity in data sources, such as well logs, cores, seismic, or production history, will provide an increased confidence in the resources estimates.
188.8.131.52 Assessment methods may be broadly characterized as deterministic, geostatistical, and probabilistic and may be applied in combination for integrated uncertainty analysis.
4.2.1 Deterministic Method
184.108.40.206 In the deterministic method, quantities are estimated by taking a discrete value or array of values for each input parameter to produce a discrete result. For the low-, best- and high-case estimates, the internally consistent deterministic inputs are selected to reflect the resultant confidence of the project scenario and the constraints applied for the resources category and resources class. A single outcome of recoverable quantities is derived for each deterministic increment or scenario. Two approaches are included in the deterministic method—the scenario (or cumulative) method and the incremental method—and should yield similar results.
220.127.116.11 In the deterministic scenario method, the evaluator provides three estimates of the quantities to be recovered from the project being applied to the accumulation. Estimates consider the full range of values for each input parameter based on available engineering and geoscience data, but one set is selected that is most appropriate for the corresponding resources confidence category. A single outcome of recoverable quantities is derived for each category. Thus, low, best and high estimates for the total project reflect uncertainty and consider confidence constraints of the categories. The low case should take into account specific choices for some variables (e.g., contact assumptions).
18.104.22.168 The deterministic incremental method is based on defining discrete parts or segments of the accumulation that reflect high, best, and low confidence regarding the estimates of recoverable quantities under the defined development plan. Typically, this approach is applied to different segments of the accumulation based on considerations of well spacing and/or geological knowledge (i.e., the different degrees of confidence are governed by distance from known data). The individual segment estimates reflect realistic combinations of parameters, and care is required to ensure that a reasonable range is used for the uncertainty in reservoir property averages (e.g., average porosity) and that interdependencies are accounted for (e.g., a high gross rock volume estimate may have a low average porosity).
22.214.171.124 While deterministic estimates may have broadly inferred confidence levels, these estimates do not have associated quantitatively defined probabilities. Nevertheless, the ranges of the probability guidelines established for the probabilistic method (see Section 2.2.1, Range of Uncertainty) influence the amount of uncertainty generally inferred in the estimate derived from the deterministic method.
4.2.2 Geostatistical Method
126.96.36.199 Geostatistical methods are a variety of mathematical techniques and processes dealing with the collection, methods, analysis, interpretation, and presentation of large quantities of geoscience and engineering data to (mathematically) describe the variability and uncertainties within any reservoir unit or pool. Geostatistical methods can be used to preserve spatial distribution information in the static reservoir model and to incorporate it in subsequent reservoir simulation applications. Such processes may yield improved estimates of the range of recoverable quantities. For example, incorporating seismic analyses typically improves the understanding of reservoir models and can contribute to more reliable resources estimates.
188.8.131.52 Where large amounts of well production data and associated EUR estimates are available, statistical methods can be applied to yield distributions that underpin Reserves categorization. When this is done, the comparability of the wells and reservoirs in the historically developed area with the target area should be considered before accepting such data as appropriate.
4.2.3 Probabilistic Method
184.108.40.206 In the probabilistic method, the evaluator defines a distribution representing the full range of possible values for each input parameter. This includes dependencies between parameters that must also be defined and applied. These distributions are randomly sampled (e.g., using stochastic geological modelling or Monte Carlo simulation) to compute a full distribution of potential in-place or recoverable quantities. Because the outcome of the resources estimates is directly linked to the input parameter distributions (both type of distribution and range), it is critically important that the evidence for each of the input distributions is properly justified and fully documented.
220.127.116.11 This approach is most often applied to volumetric resources calculations in the early phases of exploration, appraisal and development projects. The resources categorization includes confidence criteria that provide limits to parameters associated with each category. Moreover, the resources analysis must consider commercial uncertainties. Accordingly, when probabilistic methods are used, constraints on parameters may be required to ensure that results are not outside the range imposed by the deterministic guidelines and commercial uncertainties. Likewise, tests on alternative parameter distributions should be performed to fully consider the uncertainties.
18.104.22.168 When using the probabilistic approach, the resultant P90, P50, and P10 scenarios should reconcile with the deterministically derived quantities for the low-, best-, and high-estimate cases, respectively. Among the key comparative inputs to the probabilistic results are the contacts, specifically for the LKH, and the areal extent.
4.2.4 Integrated Methods
22.214.171.124 Resources assessments typically employ different methods as appropriate at each stage of exploration, appraisal, and development and often integrate several methods to better define the uncertainty.
126.96.36.199 An example of integration is the multi-scenario method, which is an extension of the deterministic scenario method. In this case, a significant number of discrete deterministic scenarios of the defined project (in the Reserves class) are developed by the user, with each scenario leading to a single deterministic outcome. Probabilities may be assigned to each discrete input assumption from which the probability of the scenario can be obtained; alternatively, each outcome may be assumed to be equally likely. Given sufficient scenarios (which may be supported through the use of experimental design techniques), it is possible to develop a full pseudo-probability distribution from which the three specific deterministic scenarios that lie close to P90, P50, and P10 probability levels may be selected for evaluation to confirm confidence levels of each of the categories. The low case must take into account specific choices for some variables (e.g., fluid contact assumptions). When the multi-scenario method is used in Contingent Resources, it allows for alternative scope of the project (e.g., range of well counts, development schemes).
188.8.131.52 Deterministic, geostatistical, and probabilistic methods may be used in combination to ensure that results of the methods are reasonable.
4.2.5 Aggregation Methods
184.108.40.206 Oil and gas quantities are generally estimated and categorized according to certainty of recovery within individual reservoirs or portions of reservoirs; this is referred to as a “reservoir level” assessment. These estimates are summed to arrive at estimates for fields, properties, and projects. Further summation is applied to yield totals for geographic areas, countries, and companies; these are generally referred to as “resources reporting levels.” The uncertainty distribution of the individual estimates at each of these levels may differ widely, depending on the geological settings and the maturity of the resources. This cumulative summation process is generally referred to as aggregation.
220.127.116.11 Two general methods of aggregation may be applied: arithmetic summation of estimates by category and statistical aggregation of probability distributions. There are typically significant differences in results from these alternative methods. In statistical aggregation, except in the rare situation when all the reservoirs being aggregated are totally dependent, the P90 (high degree of certainty) quantities from the aggregate are always greater than the arithmetic sum of the reservoir level P90 quantities, and the P10 (low degree of certainty) of the aggregate is always less than the arithmetic sum of P10 quantities assessed at the reservoir level. This “portfolio effect” is the result of the central limit theorem in statistical analysis. Note that the mean (arithmetic average) of the sums is equal to the sum of the means; that is, there is no portfolio effect in aggregating mean values.
18.104.22.168 In practice, there may be a large degree of dependence between reservoirs in the same field, and such dependencies must be incorporated in the probabilistic calculation. When dependency is present and not accounted for, aggregation will overestimate the low estimate and underestimate the high estimate.
22.214.171.124 The aggregation method used depends on the purpose. It is recommended that for reporting purposes, assessment results should not incorporate statistical aggregation beyond the field, property, or project level. Results reported beyond this level should use arithmetic summation by category but should caution that the aggregate Proved may be a very conservative estimate and aggregate 3P may be very optimistic, depending on the number of items in the aggregate. Aggregates of 2P results typically have less portfolio effect, which may not be significant in mature properties where the median approaches the mean of the resulting distribution.
126.96.36.199 Various techniques are available to aggregate deterministic and/or probabilistic field, property, or project assessment results for the purposes of detailed business unit or corporate portfolio analyses where the results incorporate the benefits of portfolio size and diversification. Again, aggregation should incorporate the degree of dependency. Where the underlying analyses are available, comparison of arithmetic and statistical aggregation results may be valuable in assessing the impact of the portfolio effect. Whether deterministic, geostatistical, or probabilistic methods are used, care should be taken to avoid systematic bias in the estimation process.
188.8.131.52 It is recognized that the monetary value associated with petroleum recovery is dependent on the production and cash flow schedules for each Project; thus, aggregate distributions of recoverable quantities may not be a direct indication of corresponding uncertainty distributions of aggregate value.
4.2.6 Aggregating Resources Classes
184.108.40.206 Petroleum quantities classified as Reserves, Contingent Resources, or Prospective Resources should not be aggregated with each other without a clear understanding and explanation of the technical and commercial risk involved with their classification. In particular, there may be a chance that accumulations containing Contingent Resources and/or Prospective Resources will not achieve commercial maturity.
220.127.116.11 Where the associated discovery and commerciality chances have been quantitatively defined, statistical techniques may be applied to incorporate individual project estimates in portfolio analysis of quantity and value.
Table 1—Recoverable Resources Classes and Sub-Classes
|Reserves||Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.||Reserves must satisfy four criteria: discovered, recoverable, commercial, and remaining based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by the development and production status.
To be included in the Reserves class, a project must be sufficiently defined to establish its commercial viability (see Section 2.1.2, Determination of Commerciality). This includes the requirement that there is evidence of firm intention to proceed with development within a reasonable time-frame.
A reasonable time-frame for the initiation of development depends on the specific circumstances and varies according to the scope of the project. While five years is recommended as a benchmark, a longer time-frame could be applied where, for
example, development of an economic project is deferred at the option of the producer for, among other things, market-related reasons or to meet contractual or strategic objectives. In all cases, the justification for classification as Reserves should be clearly documented.
To be included in the Reserves class, there must be a
high confidence in the commercial maturity and economic producibility of the reservoir as supported by actual production or formation tests. In certain cases, Reserves may be assigned on the basis of well logs and/or core analysis that indicate that the subject reservoir is hydrocarbon-bearing and is analogous to reservoirs in the same area that are producing or have
|On Production||The development project is currently producing or capable of producing and selling petroleum to market.||The key criterion is that the project is receiving income from sales, rather than that the approved development project is necessarily complete. Includes Developed Producing Reserves.
The project decision gate is the decision to initiate or continue economic production from the project.
|Approved for Development||All necessary approvals have been obtained, capital funds have been committed, and implementation of the development project is ready to begin or is under way.||At this point, it must be certain that the development project is going ahead. The project must not be subject to any contingencies, such as outstanding regulatory approvals
or sales contracts. Forecast capital expenditures should be included in the reporting entity’s current or following year’s approved budget.
The project decision gate is the decision to start investing capital in the construction of production facilities and/or drilling development wells.
|Implementation of the development project is justified on the basis of reasonable forecast commercial conditions at the time of reporting, and there are reasonable expectations that all necessary approvals/contracts will be obtained.||To move to this level of project maturity, and hence have Reserves associated with it, the development project must be commercially viable at the time of reporting (see Section 2.1.2, Determination of Commerciality) and the specific circumstances of the project. All participating entities have agreed and there is evidence of a committed project (firm intention to proceed with development within a reasonable time-frame}) There must be no known contingencies that could preclude the development from proceeding (see Reserves class).
The project decision gate is the decision by the reporting entity and its partners, if any, that the project has reached a level of technical and commercial maturity sufficient to justify proceeding with development at that point in time.
|Contingent Resources||Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable owing to one or more contingencies.||Contingent Resources may include, for example, projects for which there are currently no viable markets, where commercial recovery is dependent on technology under development, where evaluation of the accumulation
is insufficient to clearly assess commerciality, where the development plan is not yet approved, or where regulatory or social acceptance issues may exist.
Contingent Resources are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by the economic status.
|Development Pending||A discovered accumulation where project activities are ongoing to justify commercial development in the foreseeable future.||The project is seen to have reasonable potential for eventual commercial development, to the extent that further data acquisition (e.g., drilling, seismic data) and/or evaluations are currently ongoing with a view to confirming that the project is commercially viable and providing the basis for selection of an appropriate
development plan. The critical contingencies have been identified and are reasonably expected to be resolved within a reasonable time-frame. Note that disappointing appraisal/evaluation results could lead to a reclassification of the project to On Hold or Not Viable status.
The project decision gate is the decision to undertake further data acquisition and/or studies designed to move the project to a level of technical and commercial
maturity at which a decision can be made to proceed with development and production.
|Development on Hold||A discovered accumulation where project activities are on hold and/or where justification as a commercial development may be subject to significant delay.||The project is seen to have potential for commercial development. Development may be subject to a significant time delay. Note that a change in circumstances, such that there is no longer a probable chance that a critical contingency can be removed in the foreseeable future, could lead to a reclassification of the project to Not Viable status.
The project decision gate is the decision to either proceed with additional evaluation designed to clarify the potential for eventual commercial development or to temporarily suspend or delay further activities pending resolution of external contingencies.
|A discovered accumulation where project activities are under evaluation and where justification as a commercial development is unknown based on available information.||The project is seen to have potential for eventual commercial development, but further appraisal/evaluation activities are ongoing to clarify the potential for eventual commercial development.
This sub-class requires active appraisal or evaluation and should not be maintained without a plan for future
evaluation. The sub-class should reflect the actions required to move a project toward commercial maturity and economic production.
|Development Not Viable||A discovered accumulation for which there are no current plans to develop or to acquire additional data at the time because of limited production potential.||The project is not seen to have potential for eventual commercial development at the time of reporting, but the theoretically recoverable quantities are recorded so that the potential opportunity will be recognized in the event of a major change in technology or commercial conditions.
The project decision gate is the decision not to undertake further data acquisition or studies on the project for the foreseeable future.
|Prospective Resources||Those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations.||Potential accumulations are evaluated according to the chance of geologic discovery and, assuming a discovery, the estimated quantities that would be recoverable under defined development projects. It is recognized that the development programs will be of significantly less detail and depend more heavily on analog developments in the earlier phases of exploration.|
|Prospect||A project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target.||Project activities are focused on assessing the chance of geologic discovery and, assuming discovery, the range of potential recoverable quantities under a commercial development program.|
|Lead||A project associated with a potential accumulation that is currently poorly defined and requires more data acquisition and/or evaluation to be classified as a Prospect.||Project activities are focused on acquiring additional data and/or undertaking further evaluation designed to confirm whether or not the Lead can be matured into a Prospect. Such evaluation includes the assessment of the chance of geologic discovery and, assuming discovery, the range of potential recovery under feasible development scenarios.|
|Play||A project associated with a prospective trend of potential prospects, but that requires more data acquisition and/or evaluation to define specific Leads or Prospects.||Project activities are focused on acquiring additional data and/or undertaking further evaluation designed to define specific Leads or Prospects for more detailed analysis
of their chance of geologic discovery and, assuming discovery, the range of potential recovery under hypothetical development scenarios.
Table 2-Reserves Status Definitions and Guidelines
|Developed Reserves||Expected quantities to be recovered from existing wells and facilities.||Reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor compared to the cost of a well. Where required facilities become unavailable, it may be necessary to reclassify Developed Reserves as Undeveloped. Developed Reserves may be further sub-classified as Producing or Non-producing.|
|Developed Producing Reserves||Expected quantities to be recovered from completion intervals that are open and producing at the effective date of the estimate.||Improved recovery Reserves are considered producing only after the improved recovery project is in operation.|
|Developed Non-Producing Reserves||Shut-in and behind-pipe Reserves.||Shut-in Reserves are expected to be recovered from (1) completion intervals that are open at the time of the estimate but which have not yet started producing, (2) wells which were shut-in for market conditions or pipeline connections, or (3) wells not capable of production for mechanical reasons. Behind-pipe Reserves are expected to be recovered from zones in existing wells that will require additional completion work or future re-completion before start of production with minor cost to access these reserves. In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.|
|Undeveloped Reserves||Quantities expected to be recovered through future significant investments.||Undeveloped Reserves are to be produced (1) from new wells on undrilled acreage in known accumulations, (2) from deepening existing wells to a different (but known) reservoir, (3) from infill wells that will increase recovery, or (4) where a relatively large expenditure (e.g., when compared to the cost of drilling a new well) is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or improved recovery projects.|
Table 3-Reserves Category Definitions and Guidelines
|Proved Reserves||Those quantities of petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from a given date forward from known reservoirs and under defined economic conditions, operating methods, and government regulations.||If deterministic methods are used, the term “reasonable certainty” is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability (P90) that the quantities actually recovered will equal or exceed the estimate. The area of the reservoir considered as Proved includes (1) the area delineated by drilling and defined by fluid contacts, if any, and (2) adjacent undrilled portions of the reservoir that can reasonably be judged as continuous with it and commercially productive on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, Proved quantities in a reservoir are limited by the LKH as seen in a well penetration unless otherwise indicated by definitive geoscience, engineering, or performance data. Such definitive information may include pressure gradient analysis and seismic indicators. Seismic data alone may not be sufficient to define fluid contacts for Proved reserves. Reserves in undeveloped locations may be classified as Proved provided that: A. The locations are in undrilled areas of the reservoir that can be judged with reasonable certainty to be commercially mature and economically productive. B. Interpretations of available geoscience andengineering data indicate with reasonable certainty that the objective formation is laterally continuous with drilled Proved locations. For Proved Reserves, the recovery efficiency applied to these reservoirs should be defined based on a range of possibilities supported by analogs and sound engineering judgment considering the characteristics of the Proved area and the applied development program.|
|Probable Reserves||Those additional Reserves that analysis of geoscience and engineering data indicates are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves.||It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate. Probable Reserves may be assigned to areas of a reservoir adjacent to Proved where data control or interpretations of available data are less certain. The interpreted reservoir continuity may not meet the reasonable certainty criteria. Probable estimates also include incremental recoveries associated with project recovery efficiencies beyond that assumed for Proved.|
|Possible Reserves||Those additional reserves that analysis of geoscience and engineering data indicates are less likely to be recoverable than Probable Reserves.||The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P), which is equivalent to the high-estimate scenario. When probabilistic methods are used, there should be at least a 10% probability (P10) that the actual quantities recovered will equal or exceed the 3P estimate. Possible Reserves may be assigned to areas of a reservoir adjacent to Probable where data control and interpretations of available data are progressively less certain. Frequently, this may be in areas where geoscience and engineering data are unable to clearly define the area and vertical reservoir limits of economic production from the reservoir by a defined, commercially mature project. Possible estimates also include incremental quantities associated with project recovery efficiencies beyond that assumed for Probable.|
|Probable and Possible Reserves||See above for separate criteria for Probable Reserves and Possible Reserves.||The 2P and 3P estimates may be based on reasonable alternative technical interpretations within the reservoir and/ or subject project that are clearly documented, including comparisons to results in successful similar projects. In conventional accumulations, Probable and/or Possible Reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from Proved areas by minor faulting or other geological discontinuities and have not been penetrated by a wellbore but are interpreted to be in communication with the known (Proved) reservoir. Probable or Possible Reserves may be assigned to areas that are structurally higher than the Proved area. Possible (and in some cases, Probable) Reserves may be assigned to areas that are structurally lower than the adjacent Proved or 2P area. Caution should be exercised in assigning Reserves to adjacent reservoirs isolated by major, potentially sealing faults until this reservoir is penetrated and evaluated as commercially mature and economically productive. Justification for assigning Reserves in such cases should be clearly documented. Reserves should not be assigned to areas that are clearly separated from a known accumulation by non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results); such areas may contain Prospective Resources. In conventional accumulations, where drilling has defined a highest known oil elevation and there exists thepotential for an associated gas cap, Proved Reserves of oil should only be assigned in the structurally higher portions of the reservoir if there is reasonable certainty that such portions are initially above bubble point pressure based on documented engineering analyses. Reservoir portions that do not meet this certainty may be assigned as Probable and Possible oil and/or gas based on reservoir fluid properties and pressure gradient interpretations.|