Study Examines Incremental Method vs. Split Conditions in Reserves Booking

Abstract

This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 206104, “Incremental Method vs. Split Conditions: Discussing the Similarities Between Reserves Evaluation and a Madoff Scheme,” by Dominique Salacz, SPE, and Farid Allam, SPE, ADNOC, and Imre Szilagyi, Eötvös Loránd University, et al., prepared for the 2021 SPE Annual Technical Conference and Exhibition, Dubai, 21–23 September. The paper has not been peer reviewed. After the oil-price crashes of 2014 and 2020, several merger and acquisition deals ended in litigation because operators canceled major projects or infills wells that were booked in “probable” reserves only. In the complete paper, the authors challenge the compatibility between the deterministic incremental reserve assessment method and the concept of split condition, which is not allowed for reserves booking under the Petroleum Resources Management System (PRMS). With some examples, the authors argue that the incremental method may mislead investors if used wrongly. The Two Approaches PRMS is a simple, fit-for-purpose system. However, it still allows for reporting volumes under slightly different methods that may lead to very different results based on the definition adopted for the “project” by the evaluator. The text of the PRMS is quoted extensively in the complete paper in defining these methods. The authors write that the deterministic incremental method seems to be favored by evaluators educated under, or heavily exposed to, pre-2010 US Securities and Exchange Commission regulations, in which proved reserves were only disclosed. Under this approach, the term “proven” generally refers to recoverable volumes expected from the partition of the reservoir with a high degree of confidence related to the high level of geological knowledge. The authors also write that the deterministic scenario method, on the other hand, evidently is favored by evaluators and engineers with less exposure to the pre-2010 guidelines. This method provides three estimates (low, best, and high) for every individual project. Comparing the Two Methods The study-case accumulation is defined by a simple structural trap controlled by a top seal and a fault on the western side of the asset (Fig. 2 of the complete paper). Oil has been discovered by Well W1, which hit the permeable top at 9,695 ft near the structure’s crest. For mechanical reasons, drilling operations were stopped and the lowest known hydrocarbon sets the oil down to (ODT) at 9,785 ft, providing a discovered oil column of 90 ft. Horizontal Well WH2 was drilled into the discovered reservoir partition. Today, Well WH2 is the only producing well of the accumulation. Well W1 will be reperforated during a workover to produce the attic oil of the reservoir. Because the well did not reach the aquifer, a major uncertainty for further development is assigned to oil/water contact (OWC) position. At the current stage of resource maturation, up to 11 additional wells are considered.