Is Bitumen a Petroleum Reserve?

Abstract

Abstract Like most reserves issues, the answer depends on the specifics of the project relative to an interpretation of the applicable regulatory guidelines. The US Security and Exchange Commission (SEC) regulation S-X, 4-10 a) states that: "Oil and gas producing activities do not include the extraction of hydrocarbons from shale, tar sands, or coal". Thus, it has been generally accepted that oil derived from processing of mined bitumen cannot be included in petroleum reserves of companies listed on the US stock exchanges. However, the quantities of synthetic oil derived from the upgrading the same bitumen produced out of wellbores using thermal processes are routinely included in reserves disclosures. The logic is that the activities largely duplicate those involved in producing and processing heavy oil. The new Canadian Security Administrators' regulations (NI 51-101), take a different approach: "The intended product of both conventional and non-conventional oil projects is essentially the same – a liquid hydrocarbon. We believe that investors are likely to consider a reporting issuer focused on oil sands to be more comparable to a conventional oil producer than to a hard rock mining issuer. Accordingly, NI 51-101 applies to activities directed at the extraction or production of hydrocarbons from either conventional or non-conventional sources (such as surface mines and in-situ projects)". Which approach provides more clarity for investors? Should the sales product quantities derived from mined and thermally recovered bitumen be treated differently? What would be the international impact of including all bitumen in petroleum reserve estimates and production statistics? This paper presents background and reviews industry practices for the estimation and disclosure of bitumen resources. The issue is of most interest to the Canadian industry; it is forecast that by 2012 over 50% of that nation's crude production may be derived from bitumen.