Reserves definitions

Glossary of terms used in petroleum reserves or resources definitions

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1C

Denotes low estimate scenario of Contingent Resources Reference 2007 - 2.2.2.

2C

Denotes best estimate scenario of Contingent Resources Reference 2007 - 2.2.2.

3C

Denotes high estimate scenario of Contingent Resources Reference 2007 - 2.2.2.

1P

Equivalent to Proved Reserves Glossary of Reserves/Resources Terminology - 2005.

Taken to be equivalent to Proved Reserves; denotes low estimate scenario of Reserves Reference 2007 - 2.2.2.

2P

The Sum of Proved Reserves plus Probable Reserves Glossary of Reserves/Resources Terminology - 2005.

Taken to be equivalent to the sum of Proved plus Probable Reserves; denotes best estimate scenario of Reserves Reference 2007 - 2.2.2.

3P

The Sum of Proved Reserves plus Probable Reserves plus Possible Reserves Glossary of Reserves/Resources Terminology - 2005.

Taken to be equivalent to the sum of Proved plus Probable plus Possible Reserves; denotes high estimate scenario of reserves Reference 2007 - 2.2.2.

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A

Accumulation

An individual body of moveable petroleum Glossary of Reserves/Resources Terminology - 2005.

Analogous reservoir

An analogous reservoir is one in the same geographic area that is formed by the same, or very similar geological processes as, a reservoir in question (or under study for reserves evaluation) as regards sedimentation, diagenesis, pressure, temperature, chemical and mechanical history, and structure. It also has the same or similar geologic age, geologic features, and reservoir rock and fluid properties. Analogous features and characteristics can include approximate depth, pressure, temperature, reservoir drive mechanism, original fluid content, oil gravity, reservoir size, gross thickness, pay thickness, net-to-gross ratio, lithology, heterogeneity, porosity and permeability. The development scheme for a reservoir (e.g. as reflected by well spacing) can also be important in establishing the relevance of the analogy Glossary of Reserves/Resources Terminology - 2005.

Approved for development

Recoverable resources definition - All necessary approvals have been obtained, capital funds have been committed, and implementation of the development project is under way.

Guidelines - 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.

Approved for development is a sub-class of Reserves

Associated gas

Associated Gas is a natural gas found in contact with or dissolved in crude oil in the reservoir. It can be further categorized as Gas-Cap Gas or Solution Gas Glossary of Reserves/Resources Terminology - 2005.

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B

Barrels of oil equivalent

See Crude oil equivalent Glossary of Reserves/Resources Terminology - 2005.

Behind-pipe reserves

Behind-pipe reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future recompletion prior to the start of production.

Bitumen

See Natural bitumen

Buy back agreement

An agreement between a host government and a contractor under which the host pays the contractor an agreed price for all volumes of hydrocarbons produced by the contractor. Pricing mechanisms typically provide the contractor with an opportunity to recover investment at an agreed level of profit. These agreements may include financial incentives for more efficient, lower cost developments and production levels higher than the minimum level agreed. These agreements may give rights to oil volumes and generally carry a risk for the contractor. They may allow booking of reserves.

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C

Carried interest

A carried interest is an agreement under which one party (the carrying party) agrees to pay for a portion or all of the pre-production costs of another party (the carried party) on a license in which both own a portion of the working interest. This arises when the carried party is either unwilling to bear the risk of exploration or is unable to fund the cost of exploration or development directly. Owners may enter into carried interest arrangements with existing or incoming joint venture partners at the exploration stage, the development stage, or both Glossary of Reserves/Resources Terminology - 2005.

Coalbed methane

Natural gas contained in coal deposits, whether or not stored in gaseous phase. Coalbed methane, though usually mostly methane, may be produced with variable amounts of inert or even non-inert gases Glossary of Reserves/Resources Terminology - 2005.

Commercial

A project is commercial if the degree of commitment is such that the accumulation is expected to be developed and placed on production within a reasonable time frame. A reasonable time frame for the initiation of development depends on the specific circumstances but, in general, should be limited to around 5 years Glossary of Reserves/Resources Terminology - 2005.

Committed project

Petroleum development projects are committed when firm commitments have been made for the expenditures and activities needed to bring a discovered accumulation to the production stage. Undeveloped projects are committed only when it can be clearly demonstrated that there is intent to develop them and bring them to production. Intent may be demonstrated with firm funding/financial plans, declarations of commerciality, regulatory approvals and satisfaction of other conditions that would otherwise prevent the project from being developed and brought to production. These commitments should be unconditional, except for timing that may be dependent on the development of prior committed projects. An example of this would be where production is dedicated to a long-term sales contract and will only be developed as and when the capacity is required to satisfy the contract Glossary of Reserves/Resources Terminology - 2005.

Completion

Completion of a well. The process by which a well is brought to its final classification - basically dry hole, producer, or injector. A dry hole is completed by plugging and abandonment. A well deemed to be producible of petroleum, or used as an injector, is completed by establishing a connection between the reservoir(s) and the surface so that fluids can be produced from, or injected into the reservoir. Various methods are utilized to establish this connection, but they commonly involve the installation of some combination of borehole equipment, casing and tubing, and surface injection or production facilities Glossary of Reserves/Resources Terminology - 2005.

Completion interval

The specific reservoir interval(s) that is (are) open to the borehole and connected to the surface facilities for production or injection Glossary of Reserves/Resources Terminology - 2005.

Concession

A grant of access for a defined area and time period that transfers certain rights to hydrocarbons that may be discovered from the host country to an enterprise. The enterprise is generally responsible for exploration, development, production and sale of hydrocarbons that may be discovered. Typically granted under a legislated fiscal system where the host country collects taxes, fees and sometimes royalty on profits earned Glossary of Reserves/Resources Terminology - 2005.

Condensate

Condensates are a portion of natural gas of such composition that are in the gaseous phase at temperature and pressure of the reservoirs, but that, when produced, are in the liquid phase at surface pressure and temperature Glossary of Reserves/Resources Terminology - 2005.

Contingent project

Development and production of recoverable quantities has not been justified, due to conditions that may or may not be fulfilled Glossary of Reserves/Resources Terminology - 2005.

Contingent resources

Sub-classes

• Development pending
• Development unclarified or on hold
• Development not viable

Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from known accumulations but which are not currently considered to be commercially recoverable Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - 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 due to one or more contingencies.

Guidelines - 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 level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.

Continuous-type deposit

A petroleum accumulation that is pervasive throughout a large area and which is not significantly affected by hydrodynamic influences. Examples of such deposits include "basin-center" gas and gas hydrate accumulations Glossary of Reserves/Resources Terminology - 2005.

Conventional crude oil

Petroleum found in liquid form, flowing naturally or capable of being pumped without further processing or dilution see Crude Oil Glossary of Reserves/Resources Terminology - 2005.

Conventional deposit

A discrete accumulation related to a localized geological structural feature and/or stratigraphic condition, typically with each accumulation bounded by a down-dip contact with an aquifer, and which is significantly affected by hydrodynamic influences, such as the buoyancy of petroleum in water Glossary of Reserves/Resources Terminology - 2005.

Conventional gas

Conventional Gas is a natural gas occurring in a normal porous and per- meable reservoir rock, either in the gaseous phase or dissolved in crude oil, and which technically can be produced by normal production practices Glossary of Reserves/Resources Terminology - 2005.

Conveyance

Certain transactions that are in substance borrowings repayable in cash or its equivalent and shall be accounted for as borrowings and may not qualify for the recognition and reporting of oil and gas reserves. These include: 1) a) Cash advances to operators to finance exploration in return for the right to purchase oil or gas discovered. b) Funds advanced for exploration that is repayable by offset against purchases of oil or gas discovered, or in cash if insufficient oil or gas is produced by a specified date. 2) Funds advanced to an operator that are repayable in cash out of the proceeds from a specified share of future production of a producing property, until the amount advanced plus interest at a specified or determinable rate is paid in full, shall be accounted for as a borrowing and do not qualify for the recognition of reserves. The advance is a payable for the recipient of the cash and receivable for the party making the advance. Such transactions fall into a category commonly referred to as production payments Glossary of Reserves/Resources Terminology - 2005.

Cost recovery

Under a typical production-sharing agreement, the contractor is responsible for the field development and all exploration and development expenses. In return, the contractor recovers costs (investments and operating expenses) out of the gross production stream. The contractor normally receives payment in oil production and is exposed to both technical and market risks Glossary of Reserves/Resources Terminology - 2005.

Crude oil

Crude Oil is the portion of petroleum that exists in the liquid phase in natural underground reservoirs and remains liquid at atmospheric conditions of pressure and temperature. Crude Oil may include small amounts of non-hydrocarbons produced with the liquids. Crude Oil has a viscosity of less than or equal to 10,000 centipoises at original reservoir temperature and atmospheric pressure, on a gas free basis Glossary of Reserves/Resources Terminology - 2005.

Crude oil equivalent

Converting gas volumes to the oil equivalent is customarily done on the basis of the heating content or calorific value of the fuel. There are a number of methodologies in common use. Before aggregating, the gas volumes first must be converted to the same temperature and pressure. Common industry gas conversion factors usually range between 1.0 barrel of oil equivalent (boe) = 5.6 thousand standard cubic feet of gas (mscf) to 1.0 boe = 6.0 mscf Glossary of Reserves/Resources Terminology - 2005.

Cumulative production

Production of oil and gas to date Glossary of Reserves/Resources Terminology - 2005.

Current economic conditions

Establishment of current economic conditions should include relevant historical petroleum prices and associated costs and may involve an averaging period that is consistent with the purpose of the reserve estimate, appropriate contract obligations, corporate procedures, and government regulations involved in reporting these reserves Glossary of Reserves/Resources Terminology - 2005.

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D

Deterministic estimate

The method of estimation of reserves or resources is called deterministic if a single best estimate is made based on known geological, engineering, and economic data Glossary of Reserves/Resources Terminology - 2005.

Developed non-producing reserves

Recoverable resources definition - Developed non-producing reserves include shut-in and behind-pipe Reserves.

Guidelines - Shut-in reserves are expected to be recovered from (1) completion intervals which 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 which will require additional completion work or future re- completion prior to start of production. In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.

Developed non-producing reserves is a sub-class of Developed reserves

Developed producing reserves

Recoverable resources definition - Developed producing reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.

Guidelines - Improved recovery reserves are considered producing only after the improved recovery project is in operation.

Developed producing reserves is a sub-class of Developed reserves

Developed reserves

Sub-classes

• Developed producing reserves
• Developed non-producing reserves

Developed reserves are expected to be recovered from existing wells including reserves behind pipe. Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor. Developed reserves may be sub-categorized as producing or non-producing Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - Developed Reserves are expected quantities to be recovered from existing wells and facilities.

Guidelines - 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.

Development not viable

Of significant size, but awaiting development of a market or removal of other constraints to development, which may be technical, environmental, or political, for example Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A discovered accumulation for which there are no current plans to develop or to acquire additional data at the time due to limited production potential.

Guidelines - 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 any further data acquisition or studies on the project for the foreseeable future.

Development not viable is a sub-class of Contingent resources

Development on hold

Also known as - Development Unclarified.

No current plans to develop or to acquire additional data at this time Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A discovered accumulation where project activities are on hold and/or where justification as a commercial development may be subject to significant delay.

Guidelines - The project is seen to have potential for eventual commercial development, but further appraisal/evaluation activities are on hold pending the removal of significant contingencies external to the project, or substantial further appraisal/evaluation activities are required to clarify the potential for eventual commercial development. Development may be subject to a significant time delay. Note that a change in circumstances, such that there is no longer a reasonable expectation that a critical contingency can be removed in the foreseeable future, for example, could lead to a re- classification 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.

Development on hold is a sub-class of Contingent resources

Development pending

Requires further data acquisition and/or evaluation in order to confirm commerciality Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A discovered accumulation where project activities are ongoing to justify commercial development in the foreseeable future.

Guidelines - 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 re-classification 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 pending is a sub-class of Contingent resources

Discovered

The term applied to a petroleum accumulation/reservoir whose existence has been determined by its actual penetration by a well, which has also clearly demonstrated the existence of moveable petroleum by flow to the surface or at least some recovery of a sample of petroleum. Log and/or core data may suffice for proof of existence of moveable petroleum if an analogous reservoir is available for comparison. (See also “Known Accumulation”: Petroleum quantities that are discovered are in “known accumulations” or “known reservoirs”) Glossary of Reserves/Resources Terminology - 2005.

Discovered petroleum initially in place

That quantity of petroleum which is estimated, on a given date, to be contained in known accumulations, plus those quantities already produced therefrom. Discovered Petroleum-initially-in-place may be subdivided into Commercial and Sub-commercial categories, with the estimated potentially recoverable portion being classified as Reserves and Contingent Resources respectively Glossary of Reserves/Resources Terminology - 2005.

Dry gas

Dry Gas is a natural gas containing insufficient quantities of hydrocarbons heavier than methane to allow their commercial extraction or to require their removal in order to render the gas suitable for fuel use. (Also called Lean Gas) Glossary of Reserves/Resources Terminology - 2005.

Dry hole

A well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well Glossary of Reserves/Resources Terminology - 2005.

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E

Economic

In relation to petroleum reserves and resources, economic refers to the situation where the income an operation exceeds the expenses involved in, or attributable to, that operation Glossary of Reserves/Resources Terminology - 2005.

Economic interest

U.S. Treasury Regulation Sec. 1. 611-1(6)(1): An economic Interest is possessed in every case in which the taxpayer has acquired by investment any Interest in mineral in place and secures, by any form of legal relationship, income derived from the extraction of the mineral ... to which he must look for a return of his capital Glossary of Reserves/Resources Terminology - 2005.

Entitlement

Reserves consistent with the cost recovery plus profit hydrocarbons that are recoverable under the terms of the contract or lease are typically reported by the upstream contractor Glossary of Reserves/Resources Terminology - 2005.

Estimated ultimate recovery

Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from an accumulation, plus those quantities already produced therefrom Glossary of Reserves/Resources Terminology - 2005.

Exploration

Prospecting for undiscovered petroleum Glossary of Reserves/Resources Terminology - 2005.

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F

Field

An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impermeable rock, laterally by local geologic barriers, or both. It could be defined differently by regulatory authorities Glossary of Reserves/Resources Terminology - 2005.

Flare gas

Total volume of vented or flared gas Glossary of Reserves/Resources Terminology - 2005.

Flow test

An operation on a well designed to demonstrate the existence of moveable petroleum in a reservoir by establishing flow to the surface and/or to provide an indication of the potential productivity of that reservoir. Some flow tests, such as drill stem tests (DSTs), are performed in the open hole. A DST is used to obtain reservoir fluid samples, static bottomhole pressure measurements, indications of productivity and short-term flow and pressure buildup tests to estimate permeability and damage extent. Other flow tests, such as single-point tests and multi-point tests, are performed after the well has been cased. Single-point tests typically involve a measurement or estimate of initial or average reservoir pressure and a flow rate and flowing bottomhole pressure measurement. Multi-point tests are used to establish gas well deliverability and absolute open flow potential Glossary of Reserves/Resources Terminology - 2005.

Fluid contacts

Typically defined as Oil/Water Contact or Gas/Oil Contact Glossary of Reserves/Resources Terminology - 2005.

Forward sales

There are a variety of forms of transactions that involve the advance of funds to the owner of an interest in an oil and gas property in exchange for the right to receive the cash proceeds of production, or the production itself, arising from the future operation of the property. In such transactions, the owner almost invariably has a future performance obligation, the outcome of which is uncertain to some degree. Determination as to whether the transaction represents a sale or financing rests on the particular circumstances of each case Glossary of Reserves/Resources Terminology - 2005.

Fuel gas

Gas used for field and plant operations. Substantial savings can be achieved to the operating cost of a project by avoiding the purchase of alternative supplies of gas or refined fuels such as diesel. SPE guidance allows the option to include fuel gas as part of the reserves estimate as long as an appropriate expense for the gas is included in the cash flow analysis Glossary of Reserves/Resources Terminology - 2005.

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G

Gas balance

In gas production operations involving multiple working interest owners, an imbalance in gas deliveries can occur. These imbalances must be monitored over time and eventually balanced in accordance with accepted accounting procedures Glossary of Reserves/Resources Terminology - 2005.

Gas cap gas

Gas-Cap Gas is a free natural gas which overlies and is in contact with crude oil in the reservoir. It is a subset of Associated Gas Glossary of Reserves/Resources Terminology - 2005.

Gas plant products

Gas Plant Products are natural gas liquids recovered from natural gas in gas processing plants and, in some situations, from field facilities. Gas Plant Products include ethane, propane, butanes, butanes-propane mixtures, natural gasoline and plant condensates, sulphur, carbon dioxide, nitrogen and helium Glossary of Reserves/Resources Terminology - 2005.

Geostatistical methods

A variety of mathematical techniques and processes dealing with the collection, analysis, interpretation and presentation of masses of geological, geophysical and engineering data to (mathematically) describe the variability and uncertainties within any reservoir unit or pool; specifically related here to resource and reserve estimates, including the definition of (all) well and reservoir parameters in 1, 2 and 3 dimensions and the resultant modeling and potential prediction of various aspects of performance. Examples of such processes include: Monte Carlo simulation, 2D gridding and modeling of the spatial variability of geological and petrophysical properties, simulated annealing, object-based simulation, multiple-point statistics, the use of (semi) variograms, and 3D stochastic modeling. New applications include fuzzy mathematics, fast flow simulation, well intervention, and lithology and fluid prediction Glossary of Reserves/Resources Terminology - 2005.

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H

Hydrocarbons

Hydrocarbons are chemical compounds consisting wholly of hydrogen and carbon Glossary of Reserves/Resources Terminology - 2005.

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I

Improved recovery

Improved Recovery is the extraction of additional petroleum, beyond Primary Recovery, from naturally occurring reservoirs by supplementing the natural forces in the reservoir. It includes water-flooding, secondary processes, tertiary processes and any other means of supplementing natural reservoir recovery processes. (also called Enhanced Recovery) Glossary of Reserves/Resources Terminology - 2005.

Injection

The forcing or pumping of substances into a porous and permeable subsurface rock formation. Examples of injected substances can include either gases or liquids Glossary of Reserves/Resources Terminology - 2005.

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J

Justified for development

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 Glossary of Reserves/Resources Terminology - 2005.

Guidelines - In order 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, based on the reporting entity’s assumptions of future prices, costs, etc. (“forecast case”) and the specific circumstances of the project. Evidence of a firm intention to proceed with development within a reasonable time frame will be sufficient to demonstrate commerciality. There should be a development plan in sufficient detail to support the assessment of commerciality and a reasonable expectation that any regulatory approvals or sales contracts required prior to project implementation will be forthcoming. Other than such approvals/contracts, there should be no known contingencies that could preclude the development from proceeding within a reasonable timeframe (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.

Justified for development is a sub-class of Reserves

K

Known accumulation

The term accumulation is used to identify an individual body of moveable petroleum. The key requirement to consider an accumulation as known, and hence contain reserves or contingent resources, is that each accumulation/reservoir must have been penetrated by a well. In general, the well must have clearly demonstrated the existence of moveable petroleum in that reservoir by flow to surface or at least some recovery of a sample of petroleum from the well. However, where log and/or core data exist, this may suffice, provided there is a good analogy to a nearby and geologically comparable known accumulation Glossary of Reserves/Resources Terminology - 2005.

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L

Lead

Potential area where one or more accumulations are currently poorly defined and require more data acquisition and/or evaluation in order to be classified as a prospect. A lead will occur within a play Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A project associated with a potential accumulation that is currently poorly defined and requires more data acquisition and/or evaluation in order to be classified as a prospect.

Guidelines - 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 discovery and, assuming discovery, the range of potential recovery under feasible development scenarios.

Lead is a sub-class of Prospective resources

Lease condensates

Lease Condensate is natural gas liquids recovered from produced gas (associated and non-associated), in gas-liquid separators or field facilities Glossary of Reserves/Resources Terminology - 2005.

Loan agreement

A loan agreement is typically used by a bank, other financial investor, or partner to finance all or part of an oil and gas project. Compensation for funds advanced is limited to a specified interest rate. The lender does not participate in profits earned by the project above this interest rate. There is normally a fixed repayment schedule for the amount advanced, and repayment of the obligation is made before any return to equity investors. Risk is limited to default of the borrower or failure of the project. Variations in production, market prices, and sales do not normally affect compensation. Reserves are not recognized under this type of agreement Glossary of Reserves/Resources Terminology - 2005.

Low or best or high estimates

The range of uncertainty reflects a reasonable range of estimated potentially recoverable volumes for an individual accumulation or a project. In the case of reserves, and where appropriate, this range of uncertainty can be reflected in estimates for proved reserves (1P), proved plus probable reserves (2P), and proved plus probable plus possible reserves (3P) scenarios. For other resource categories, the equivalent terms Low Estimate, Best Estimate, and High Estimate are recommended Glossary of Reserves/Resources Terminology - 2005.

Lowest known

The deepest observed occurrence of a producible hydrocarbon accumulation as demonstrated by well log, flow test or core data Glossary of Reserves/Resources Terminology - 2005.

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M

Mineral interest

Mineral Interests in Properties Including (I) a fee ownership or lease, concession or other interest representing the right to extract oil, or gas subject to such terms as may be imposed by the conveyance of that interest,(ii) royalty interests, production payments payable in oil or gas, and other nonoperating interests in properties operated by others; and (iii) those agreements with foreign governments or authorities under which a reporting entity participates in the operation of the related properties or otherwise serves as producer of the underlying reserves (as opposed to being an independent purchaser, broker, dealer or importer). Properties do not include other supply agreements or contracts that represent the right to purchase, rather than extract, oil and gas Glossary of Reserves/Resources Terminology - 2005.

Monte Carlo simulation

A type of stochastic mathematical simulation which randomly and repeatedly samples input distributions (e.g. reservoir properties) to generate a results distribution (e.g. recoverable petroleum volumes) Glossary of Reserves/Resources Terminology - 2005.

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N

Natural Bitumen

Natural bitumen is the portion of petroleum that exists in the semi-solid or solid phase in natural deposits. In its natural state it usually contains sulphur, metals and other non-hydrocarbons. Natural Bitumen has a viscosity greater than 10,000 centipoises measured at original temperature in the deposit and atmospheric pressure, on a gas free basis. In its natural viscous state, it is not normally recoverable at commercial rate through a well. Natural Bitumen generally requires upgrading prior to normal refining. (Also called Crude Bitumen) Glossary of Reserves/Resources Terminology - 2005.

Natural gas

Natural Gas is the portion of petroleum that exists either in the gaseous phase or is in solution in crude oil in natural underground reservoirs, and which is gaseous at atmospheric conditions of pressure and temperature. Natural Gas may include amounts of non-hydrocarbons Glossary of Reserves/Resources Terminology - 2005.

Natural gas liquids

Natural Gas Liquids are those portions of natural gas which are recovered as liquids in separators, field facilities or gas processing plants. Natural Gas Liquids include but are not limited to ethane, propane, butanes, pentanes, and natural gasoline. Condensate may or may not be included Glossary of Reserves/Resources Terminology - 2005.

Natural gas liquids to gas ratio

Ratio of natural gas liquids to gas (in barrels/million cubic feet) in an oil field, calculated using measured natural gas liquids and gas volumes at stated conditions Glossary of Reserves/Resources Terminology - 2005.

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Net profits interest

An interest that receives a portion of the net proceeds from a well, typically after all costs have been paid Glossary of Reserves/Resources Terminology - 2005.

Net working interest

A company’s working interest reduced by royalties or share of production owing to others under applicable lease and fiscal terms Glossary of Reserves/Resources Terminology - 2005.

Non hydrocarbon gas

In the event that non-hydrocarbon gases are present, the reported volumes should reflect the condition of the gas at the point of sale. Correspondingly, the accounts will reflect the value of the gas product at the point of sale. Hence, if gas sold as produced includes a proportion of carbon dioxide, for example, the reserves and production should also include that CO2. In the case of the CO2 being extracted before sale and the sales gas containing only hydrocarbon gases, the reserves and production should reflect only the hydrocarbon gases that will be sold Glossary of Reserves/Resources Terminology - 2005.

Non-associated gas

Non-Associated Gas is a natural gas found in a natural reservoir that does not contain crude oil Glossary of Reserves/Resources Terminology - 2005.

Non-conventional gas

Non-Conventional Gas is a natural gas found in unusual underground situations such as very impermeable reservoirs, hydrates, and coal deposits Glossary of Reserves/Resources Terminology - 2005.

Non-producing

Reserves subcategorized as non-producing include shut-in and behind-pipe reserves. Shut-in reserves are expected to be recovered from (1) completion intervals which are open at the time of the estimate, but which have not started producing, (2) wells which were shut-in for market conditions or pipeline connections, or (3) wells not capable of production for mechanical reasons.

Non-producing is a sub-class of Developed reserves

Non-producing reserves

Reserves subcategorized as non-producing include shut-in and behind-pipe reserves. Shut-in reserves are expected to be recovered from (1) completion intervals which are open at the time of the estimate, but which have not 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, which will require additional completion work or future recompletion prior to the start of production Glossary of Reserves/Resources Terminology - 2005.

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O

Offset well location

Potential drill location adjacent to an existing well. The offset distance may be governed by well spacing regulations. Proved volumes on the existing well are indicated by either conclusive formation test or production. For proved volumes to be assigned to an offset well location there must be conclusive, unambiguous technical data which supports the reasonable certainty of production of hydrocarbon volumes and sufficient legal acreage to economically justify the development without going below the shallower of the fluid contact or the lowest known hydrocarbon Glossary of Reserves/Resources Terminology - 2005.

On production

Currently producing and selling petroleum to market Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - The development project is currently producing and selling petroleum to market.

Guidelines - The key criterion is that the project is receiving income from sales, Rather than the approved development project necessarily being complete. This is the point at which the project “chance of commerciality” can be said to be 100%.

The project “decision gate” is the decision to initiate commercial production from the project.

On production is a sub-class of Reserves

Operator

The company or individual responsible for managing an exploration, development, or production operation Glossary of Reserves/Resources Terminology - 2005.

Overlift or Underlift

Production overlift or underlift can occur in annual records because of the necessity for companies to lift their entitlement in parcel sizes to suit the available shipping schedules as agreed among the parties. At any given financial year-end, a company may be in overlift or underlift. Based on the production matching the company's accounts, production should be reported in accord with and equal to the liftings actually made by the company during the year, and not on the production entitlement for the year Glossary of Reserves/Resources Terminology - 2005.

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P

Penetration

The intersection of a wellbore with a reservoir Glossary of Reserves/Resources Terminology - 2005.

Petroleum

Petroleum is a naturally occurring mixture consisting predominantly of hydrocarbons in the gaseous, liquid or solid phase Glossary of Reserves/Resources Terminology - 2005.

Petroleum in place

Petroleum-in-Place is the total quantity of petroleum that is estimated to exist originally in naturally occurring reservoirs. Oil-in-place, gas-in-place, bitumen-in- place, are defined in the same manner Glossary of Reserves/Resources Terminology - 2005.

Pilot project

A small scale test or trial operation that is used to assess the suitability of a method for commercial application Glossary of Reserves/Resources Terminology - 2005.

Planned for development

Satisfies all the criteria for reserves, and there is a firm intent to develop, but detailed development planning and/or necessary approvals/contracts have yet to be finalized Glossary of Reserves/Resources Terminology - 2005.

Play

Recognized prospective trend of potential prospects, but which requires more data acquisition and/or evaluation to define specific leads or prospects Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A project associated with a prospective trend of potential prospects, but which requires more data acquisition and/or evaluation in order to define specific leads or prospects.

Guidelines - 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 discovery and, assuming discovery, the range of potential recovery under hypothetical development scenarios.

Play is a sub-class of Prospective resources

Pool

See Reservoir Glossary of Reserves/Resources Terminology - 2005.

Possible reserves

Possible reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated proved, plus probable, plus possible reserves. In general, possible reserves may include

(1) reserves which, based on geological interpretations, could possibly exist beyond areas classified as probable,

(2) reserves in formations that appear to be petroleum bearing, based on log and core analysis but may not be productive at commercial rates,

(3) incremental reserves attributed to infill drilling that are subject to technical uncertainty,

(4) reserves attributed to improved recovery methods when

(a) a project or pilot is planned, but not in operation and

(b) rock, fluid, and reservoir characteristics are such that a reasonable doubt exists that the project will be commercial, and

(5) reserves in an area of the formation that appears to be separated from the proved area by faulting and geological interpretation indicates the subject area is structurally lower than the proved area. Often referred to as P3

Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - Possible Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than Probable Reserves.

Guidelines - 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 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 commercial production from the reservoir by a defined project.

Possible estimates also include incremental quantities associated with project recovery efficiencies beyond that assumed for Probable.

See also Probable and possible reserves

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Primary recovery

Primary recovery is the extraction of petroleum from reservoirs utilizing only the natural energy available in the reservoirs to move fluids through the reservoir rock or other points of recovery Glossary of Reserves/Resources Terminology - 2005.

Probabilistic estimate

The method of estimation is called probabilistic when the known geological, engineering, and economic data are used to generate a range of estimates and their associated probabilities Glossary of Reserves/Resources Terminology - 2005.

Probable and possible reserves

Definition - See criteria for Probable reserves and Possible reserves

Guidelines - The 2P and 3P estimates may be based on reasonable alternative technical and commercial 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 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 (HKO) elevation and there exists the potential for an associated gas cap, Proved oil Reserves 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.

Probable reserves

Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.

In general, probable reserves may include

(1) reserves anticipated to be proved by normal step-out drilling where sub-surface control is inadequate to classify these reserves as proved,

(2) reserves in formations that appear to be productive, based on well log characteristics, but lack core data or definitive tests and which are not analogous to producing or proved reservoirs in the area,

(3) incremental reserves attributable to infill drilling that could have been classified as proved if closer statutory spacing had been approved at the time of the estimate,

(4) reserves attributable to improved recovery methods that have been established by repeated commercially successful applications when

(a) a project or pilot is planned, but not in operation and

(b) rock, fluid, and reservoir characteristics appear favorable for commercial application,

(5) reserves in an area of the formation that appears to be separated from the proved area by faulting and the geologic interpretation indicates the subject area is structurally higher than the proved area,

(6) reserves attributable to a future workover, treatment, re- treatment, change of equipment, or other mechanical procedures, where such procedure has not been proved successful in wells which exhibit similar behavior in analogous reservoirs, and

(7) incremental reserves in proved reservoirs where an alternative interpretation of performance or volumetric data indicates more reserves than can be classified as proved. Often referred to as P2.

Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - 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.

Guidelines - 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.

See also Probable and possible reserves

Producing

Reserves subcategorized as producing are expected to be recovered from completion intervals which are open and producing at the time of the estimate. Improved recovery reserves are considered producing only after the improved recovery project is in operation.

Producing is a sub-class of Developed reserves

Producing reserves

Reserves subcategorized as producing are expected to be recovered from intervals which are open and producing at the time of the estimate. Improved recovery is considered producing only after the improved recovery project is in operation Glossary of Reserves/Resources Terminology - 2005.

Production

The quantity of petroleum produced in a given period Glossary of Reserves/Resources Terminology - 2005.

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Production sharing contract

In a production-sharing contract between a contractor and a host government, the contractor typically bears all risk and costs for exploration, development, and production. In return, if exploration is successful, the contractor is given the opportunity to recover the investment from production, subject to specific limits and terms. The contractor also receives a stipulated share of the production remaining after cost recovery, referred to as profit hydrocarbons. Ownership is retained by the host government; however, the contractor normally receives title to the prescribed share of the volumes as they are produced. Reserves consistent with the cost recovery plus profit hydrocarbons that are recoverable under the terms of the contract are typically reported by the upstream contractor Glossary of Reserves/Resources Terminology - 2005.

Profit split

Under a typical production-sharing agreement, the contractor is responsible for the field development and all exploration and development expenses. In return, the contractor is entitled to a share of the remaining profit oil or gas. The contractor receives payment in oil or gas production and is exposed to both technical and market risks Glossary of Reserves/Resources Terminology - 2005.

Project

This represents the link between the petroleum accumulation and the decision- making process, including budget allocation. A project may, for example, constitute the development of a single reservoir or field, or an incremental development for a producing field, or the integrated development of a group of several fields. In general, an individual project will represent the level at which a decision is made on whether or not to proceed (i.e., spend money), and there should be an associated range of estimated recoverable volumes for that project Glossary of Reserves/Resources Terminology - 2005.

Prorationing

The allocation of production among reservoirs and wells or pipeline allocation of capacity among shippers, etc Glossary of Reserves/Resources Terminology - 2005.

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Prospect

Potential accumulation that is sufficiently well defined to represent a viable drilling target Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - A project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target.

Guidelines - Project activities are focused on assessing the chance of discovery and, assuming discovery, the range of potential recoverable quantities under a commercial development program.

Prospect is a sub-class of Prospective resources

Prospective resources

Sub-classes

• Prospect
• Lead
• Play

Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from undiscovered accumulations Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - Those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations.

Guidelines - Potential accumulations are evaluated according to their chance of 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.

Proved developed reserves

Proved Developed Reserves are those Proved Reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods. Improved recovery reserves can be considered as Proved Developed Reserves only after an improved recovery project has been installed and favorable response has occurred or is expected with a reasonable degree of certainty. (See Developed Reserves)

Behind-pipe reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future re-completion prior to the start of production Glossary of Reserves/Resources Terminology - 2005.

Proved reserves

Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. Proved reserves can be categorized as development or undeveloped. 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. Often referred to as P1, sometimes referred to as “proven”. Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - Proved Reserves are those quantities of petroleum, which 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.

Guidelines - 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.

The area of the reservoir considered as Proved includes:

(1) the area delineated by drilling and defined by fluid contacts, if any,

(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 lowest known hydrocarbon (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 (see “2001 Supplemental Guidelines,” Chapter 8).

Reserves in undeveloped locations may be classified as Proved provided that:

• The locations are in undrilled areas of the reservoir that can be judged with reasonable certainty to be commercially productive.
• Interpretations of available geoscience and engineering 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.

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Proved undeveloped reserves

Proved Undeveloped Reserves are those Proved Reserves that are expected to be recovered from future wells and facilities, including future improved recovery projects which are anticipated with a high degree of certainty in reservoirs which have previously shown favorable response to improved recovery projects. [See Undeveloped] Glossary of Reserves/Resources Terminology - 2005.

Purchase contracts

A contract to purchase oil and gas provides the right to purchase a specified volume at an agreed price for a defined term. Under purchase contracts, exposure to technical and market risks are borne by the seller. While a purchase or supply contract can provide long-term access to reserves through production, it does not convey the right to extract, nor does it convey a financial interest in the reserves. Consequently, reserves would not be recognized by the buyer under this type of agreement Glossary of Reserves/Resources Terminology - 2005.

Pure service contract

A pure-service contract is an agreement between a contractor and a host government that typically covers a defined technical service to be provided or completed during a specific period of time. The service company investment is typically limited to the value of equipment, tools, and personnel used to perform the service. In most cases, the service contractor's reimbursement is fixed by the terms of the contract with little exposure to either project performance or market factors. Payment for services is normally based on daily or hourly rates, a fixed turnkey rate, or some other specified amount. Payments may be made at specified intervals or at the completion of the service. Payments, in some cases, may be tied to the field performance, operating cost reductions, or other important metrics. Risks of the service company under this type of contract are usually limited to nonrecoverable costs overruns, losses owing to client breach of contract, default, or contract dispute. These agreements generally do not have exposure to production volume or market price; consequently, reserves are not usually recognized under this type of agreement Glossary of Reserves/Resources Terminology - 2005.

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R

Range of uncertainty of recoverable hydrocarbon quantities

See [Resource Uncertainty Categories] Glossary of Reserves/Resources Terminology - 2005.

Raw natural gas

Raw Natural Gas is natural gas as it is produced from the reservoir. It includes varying amounts of the heavier hydrocarbons which liquefy at atmospheric conditions, and water vapor; and may also contain sulphur compounds such as hydrogen sulphide, and other non-hydrocarbon gases such as carbon dioxide, nitrogen or helium, but which, nevertheless, is exploitable for its hydrocarbon content. Raw Natural Gas is often not suitable for direct utilization by most types of consumers Glossary of Reserves/Resources Terminology - 2005.

Reasonable certainty

If deterministic methods for estimating reserves are used, then 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 volumes actually recovered will equal or exceed the estimate.

The Security and Exchange Commission considers the concept of reasonable certainty to imply that, as more technical data becomes available, a positive, or upward, revision is much more likely than a negative, or downward, revision Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources

Those quantities of hydrocarbons which are estimated to be producible from accumulations, either discovered or undiscovered Glossary of Reserves/Resources Terminology - 2005.

Recovery efficiency

A numeric expression of that portion of in-place quantities of petroleum estimated to be recoverable by specific processes or projects, most often represented as a percentage.

Reserves

Reserves

Sub-Classes

• On production
• Approved for development
• Justified for development

Reserves are those quantities of hydrocarbons which are anticipated to be commercially recovered from known accumulations from a given date forward under defines conditions Glossary of Reserves/Resources Terminology - 2005.

Guidelines - Reserves must satisfy four criteria: they must be discovered, recoverable, commercial, and remaining based on the development project(s) applied. Reserves are further subdivided in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their development and production status.

• To be included in the Reserves class, a project must be sufficiently defined to establish its commercial viability. There must be a reasonable expectation that all required internal and external approvals will be forthcoming, and 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 5 years is recommended as a benchmark, a longer time frame could be applied where, for example, development of economic projects are 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 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 demonstrated the ability to produce on formation tests

Reservoir

A subsurface rock formation containing one or more individual and separate natural accumulations of moveable petroleum that is confined by impermeable rock and is characterized by a single-pressure system. Also referred to as Pool Glossary of Reserves/Resources Terminology - 2005.

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Resource uncertainty categories

Any estimation of resource quantities for an accumulation or group of accumulations is subject to uncertainty and should, in general, be expressed as a range. The function of the three primary categories of reserves (proved, probable, possible) is to illustrate the range of uncertainty in the estimate of the potentially recoverable volume of petroleum from a known accumulation. Such estimates, which are done initially for each well or reservoir, may be made deterministically or probabilistically and are then aggregated for the accumulation/project as a whole. Provided a similar logic is applied for all volumetric estimates (including contingent and prospective resources), the estimate of uncertainty for each accumulation can be tracked over time from exploration through discovery, development, and production. This approach provides an extremely effective basis for evaluating the validity of the methodology used for the estimate of potentially recoverable volumes. The range of uncertainty reflects a reasonable range of estimated potentially recoverable volumes for an individual accumulation or a project. In the case of reserves, and where appropriate, this range of uncertainty can be reflected in estimates for proved reserves (IP), proved, plus probable reserves (2P), and proved, plus probable, plus possible reserves (3P) scenarios. For other resource categories, the equivalent terms low estimate, best estimate, and high estimate are recommended Glossary of Reserves/Resources Terminology - 2005.

Resources

See Total petroleum initially-in-place Glossary of Reserves/Resources Terminology - 2005.

Revenue sharing contract

Revenue-sharing contracts are very similar to the production-sharing contracts described earlier, with the exception of contractor payment. With these contracts, the contractor usually receives a defined share of revenue rather than a share of the production. As in the production- sharing contract, the contractor provides the capital and technical expertise required for exploration and development. If exploration efforts are successful, the contractor can recover those costs from the sale revenues. A very similar type of agreement is commonly known as a risked-service contract. This type of agreement is also often used where the contracting party provides expertise and capital to rehabilitate or institute improved recovery operations in an existing field. Provided that the requirements for reserves recognition are satisfied, reported reserves are typically based on the economic interest held or the financial benefit received Glossary of Reserves/Resources Terminology - 2005.

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Reversionary interest

The right of future possession of an interest in a property when a specified condition has been met Glossary of Reserves/Resources Terminology - 2005.

Risk

The probability of loss or failure. As “risk” is generally associated with the negative outcome, the term “chance” is preferred for general usage to describe the probability of a discrete event occurring Glossary of Reserves/Resources Terminology - 2005.

Risk and reward

Risk and reward associated with oil and gas production activities stems primarily from the variation in revenues from technical and economic risks. Many companies use exposure to risk in conjunction with the rights that they are assigned to operate and to take volumes in kind to support reserves reporting. Technical risk affects a company's ability to physically extract and recover hydrocarbons and is usually dependent on a number of technical parameters. Economic risk is a function of the success of a project and is critically dependent on the ability to economically recover the in-place hydrocarbons Glossary of Reserves/Resources Terminology - 2005.

Risk service contract

These agreements are very similar to the production-sharing agreements with the exception of contractor payment. With a risked-service contract, the contractor usually receives a defined share of revenue rather than a share of the production. As in the production-sharing contract, the contractor provides the capital and technical expertise required for exploration and development. If exploration efforts are successful, the contractor can recover those costs from the sale revenues and receive a share of profits through a contract-defined mechanism. Under existing SEC regulations, it may be more difficult for the contractor to justify reserves recognition, and special care must be taken in drafting the agreement. Provided that the requirements for reserves recognition are satisfied, reported reserves are typically based on the economic interest held or the financial benefit received Glossary of Reserves/Resources Terminology - 2005.

Royalty

Royalty refers to payments that may be due to the host government, mineral owner, or landowner, in return for the producer having access to the petroleum. Many agreements allow for the producer to lift the royalty volumes, sell them on behalf of the royalty owner, and pay the proceeds to the owner. A few agreements provide for the royalty to be taken only in kind by the royalty owner Glossary of Reserves/Resources Terminology - 2005.

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S

Shut-in reserves

Shut-in reserves are expected to be recovered from

1. Completion intervals which are open at the time of the estimate, but which have not started producing,
2. Wells which were shut-in for market conditions or pipeline connections, or
3. Wells not capable of production for mechanical reasons

Glossary of Reserves/Resources Terminology - 2005.

Solution gas

Solution Gas is a natural gas which is dissolved in crude oil in the reservoir at the prevailing reservoir conditions of pressure and temperature. It is a subset of Associated Gas Glossary of Reserves/Resources Terminology - 2005.

Sour natural gas

Sour Natural Gas is a natural gas that contains sulphur, sulphur compounds and/or carbon dioxide in quantities that may require removal for effective use Glossary of Reserves/Resources Terminology - 2005.

Stochastic

Adjective defining a process involving or containing a random variable or variables or involving chance or probability such as a stochastic stimulation Glossary of Reserves/Resources Terminology - 2005.

Sub-commercial

A project is Sub-commercial if the degree of commitment is not such that the accumulation is expected to be developed and placed on production within a reasonable time frame. A reasonable time frame for the initiation of development depends on the specific circumstances but, in general, should be limited to around 5 years Glossary of Reserves/Resources Terminology - 2005.

Sweet natural gas

Sweet Natural Gas is a natural gas that contains no sulphur or sulphur compounds at all, or in such small quantities that no processing is necessary for their removal in order that the gas may be used directly as a non-corrosive domestic heating fuel Glossary of Reserves/Resources Terminology - 2005.

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T

Taxes

Enforced contributions to the public funds, levied on persons, property, or income by governmental authority Glossary of Reserves/Resources Terminology - 2005.

Total petroleum initially in place

The entire resource base (Total Petroleum-initially-in-place) is generally accepted to be all those estimated quantities of petroleum contained in the sub- surface, as well as those quantities already produced. This was defined previously by the WPC as "Petroleum-in-place" and has been termed "Resource Base" by others Glossary of Reserves/Resources Terminology - 2005.

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U

Uncertainty

The range of possible outcomes in an estimate Glossary of Reserves/Resources Terminology - 2005.

Under development

All necessary approvals have been obtained, and development of the project is underway Glossary of Reserves/Resources Terminology - 2005.

Undeveloped reserves

Undeveloped reserves are expected to be recovered: (1) from new wells on undrilled acreage, (2) from deepening existing wells to a different reservoir, or (3) where a relatively large expenditure is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or improved recovery projects Glossary of Reserves/Resources Terminology - 2005.

Recoverable resources definition - Undeveloped Reserves are quantities expected to be recovered through future investments

• (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
• (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.

Unitization

Process whereby owners of adjoining properties allocate reserves, production, costs, etc Glossary of Reserves/Resources Terminology - 2005.

Unproved reserves

Unproved reserves are based on geologic and/or engineering data similar to that used in estimates of proved reserves; but technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved. Unproved reserves may be further classified as probable reserves and possible reserves. Unproved reserves may be estimated assuming future economic conditions different from those prevailing at the time of the estimate. The effect of possible future improvements in economic conditions and technological developments can be expressed by allocating appropriate quantities of reserves to the probable and possible classifications Glossary of Reserves/Resources Terminology - 2005.

Unrecoverable resources

The portion of discovered or undiscovered petroleum-initially-in-place quantities not currently considered to be recoverable. A portion of these quantities may become recoverable in the future as commercial circumstances change, technological developments occur, or addition data is acquired Glossary of Reserves/Resources Terminology - 2005.

W

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Well abandonment

The permanent plugging of a dry hole or of a well that no longer produces petroleum or is no longer capable of producing petroleum profitably. Several steps are involved in the abandonment of a well: permission for abandonment and procedural requirements are secured from official agencies; the casing is removed and salvaged if possible; and one or more cement plugs and/or mud are placed in the borehole to prevent migration of fluids between the different formations penetrated by the borehole Glossary of Reserves/Resources Terminology - 2005.

Wet gas

Wet (Rich) Gas is a natural gas containing sufficient quantities of hydrocarbons heavier than methane to allow their commercial extraction or to require their removal in order to render the gas suitable for fuel use Glossary of Reserves/Resources Terminology - 2005.

Working interest

A company’s equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms Glossary of Reserves/Resources Terminology - 2005.

Publication Notes

PRMS 2007

Appendix A: Glossary of Terms Used in Resources Evaluations: Originally published in January 2005, the SPE/WPC/AAPG Glossary has herein been revised to align with the 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management System document. The glossary provides high-level definitions of terms use in resource evaluations. Where appropriate, sections and/or chapters within the 2007 and/or 2001 documents are referenced to best show the use of selected terms in context. Read more...

PRMS 2005

Glossary of Terms Used in Petroleum Reserves/Resources Definitions: For several decades, the terminology used in the classification of petroleum reserves and resources has been the subject of study and ongoing revision. Since the mid-1930s, numerous technical organizations, regulatory bodies, and financial institutions have introduced ever more complex terminologies for the classification of petroleum reserves. In addition, the evolution of technology has yielded more precise engineering methods for reserve evaluation and has intensified the need for an improved nomenclature to achieve consistency among professionals working with petroleum reserves terminology. Read more...

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See also

Petroleum Reserves & Resources Definitions