Definition Of Reserves Research Articles

Demonstrating Reasonable Certainty Under Principles-Based Oil and Gas Reserves Regulations

Summary Historically, oil and gas reserves definitions have included the term "reasonable certainty" when describing the standard of high confidence/low uncertainty for a conservative estimate of future recovery from an accumulation. In 2008, the US Securities and Exchange Commission (SEC), one source for such definitions and regulations, changed its rules on oil and gas reserves and moved from a more rules-based approach to a more principles-based approach. While the SEC regulations both before and after this change incorporated the term "reasonable certainty," the philosophical change from rules-based to principles-based regulation puts more responsibility on the reserves evaluator to understand the uncertainties in the reserves estimation and to "get it right." This paper examines the stated definition of reasonable certainty as well as the effective definition based on how the regulations were interpreted under the prior rules-based system. Examples of prior methods of regulatory controls, under a rules-based system, that no longer fit under a principles-based system are noted. The paper then examines the current definition. The overprint of a principles-based regulatory system must be considered to understand how such an approach will impact the effective definition under the current rules. The insights from the financial and legal communities are examined for their learnings in which other forms of regulations underwent this same philosophical change. This examination describes how rules-based systems are more "input control" focused, while principles-based systems focus more on "outcomes." Next, the paper suggests how the reserves evaluator should apply this understanding of the new principles-based rules. The evaluator is now more responsible to understand the range of uncertainty in reserves estimates and to ensure that the outcome (the proved reserves estimate) satisfies the regulations. Also, the paper discusses key tests to demonstrate that the correct outcome— a reasonably certain volume—has been achieved. After 30 years of well-established practices, the responsible reserves evaluator has examined changes as they evolved in then-current regulation text. Now, the evaluator needs to additionally consider changes based on the implications of principles-based regulations.

CO2 Storage Capacity - Combining Geology, Engineering, and Economics

This article, written by Senior Technology Editor Dennis Denney, contains highlights of paper SPE 133804, ’CO2 Storage Capacity - Combining Geology, En gineering, and Economics,’ by W.G. Allinson, SPE, Y. Cinar, SPE, P.R. Neal, SPE, J. Kaldi, SPE, and L. Paterson, SPE, Cooperative Research Centre for Greenhouse Gas Technologies, prepared for the 2010 SPE Asia Pacific Oil & Gas Conference and Exhibition, Brisbane, Australia, 18-20 October. The paper has not been peer reviewed. The authors contend that any capacity-estimation method requires a combination of geological, engineering, and economic analysis to provide rigorous capacity estimates. Also, the classification of capacity estimates should follow concepts in the existing SPE Petroleum Resources Management System (PRMS) as closely as possible. Definitions of petroleum resources can be applied to storage capacity, and a storage-capacity classification system is recommended. Introduction As technology for carbon capture and storage (CCS) moves from research to deployment, there is a need to estimate the amount of carbon dioxide (CO2) that can be stored safely and securely in the subsurface. Much of the literature on estimating the capacity of geological sites for storing CO2 focuses on determining the total pore volume of a formation and then applying a “storage-efficiency factor” to quantify the portion of this resource that could be accessed for storage. Theoretical and practical pitfalls of such storage-capacity-estimation methods are identified. A more-appropriate means of estimating CO2-storage capacity uses a combination of geological, reservoir-engineering, and economic analyses. Such an approach leads directly to definitions of capacity that have direct correlation with SPE definitions of reserves and resources. Unless otherwise stated, the term “storage capacity” is used loosely here to mean that part of the Earth’s crust in which CO2 can be stored either practically or economically. Estimating Storage Capacity A difficulty in determining storage capacity by traditional methods and by use of reservoir simulation and economics is defining the area and thickness of the potential storage formation. Possibly straightforward for a structural trap having a single high-permeability sandstone layer bounded by sealing shale layers, these definitions become more difficult for interbedded sands and shales of varying quality, which leads to definitions that involve permeability- or porosity-cutoff values (usually defined without reference to commercial factors). In some cases, the thickness can be determined from techniques such as reflection seismology and geophysical well logging with some satisfactory accuracy. However, estimating the area can be particularly challenging.

Modernization of the SEC Oil and Gas Reserves Reporting Requirements

This article, written by Senior Technology Editor Dennis Denney, contains highlights of paper SPE 123793, "Modernization of the SEC Oil and Gas Reserves Reporting Requirements," by W. John Lee, SPE, Texas A&M University, prepared for the 2009 SPE Annual Technical Conference and Exhibition, New Orleans, 4-7 October. The paper has not been peer reviewed. Modernized US Securities and Exchange Commission (SEC) rules for reporting oil/gas reserves are now broadly consistent with SPE definitions and generally reflect public requests for specific changes in the previous rules. Disclosure requirements based on the revised definitions use annual average prices and allow wider use of reliable technologies. They also allow broader recognition of nontraditional resources, including those from oil sands, shales, and coal; optional disclosure of probable and possible reserves; and replacement of the "certainty" criterion for some reserves with a "reasonably certain" criterion. Official clarification of some of the new terms may be forthcoming. Here, the author provides his opinion of their intent. Introduction The SEC oil/gas reserves-reporting requirements in effect until the end of 2009 were adopted in 1978, with some associated requirements adopted through 1982. In the three decades since adoption of these requirements, the petroleum industry has experienced many changes. As examples, technology associated with recovery and characterization of petroleum accumulations has advanced dramatically; spot markets and transportation of sales products to market have grown and improved substantially; and economic production of nontraditional resources, such as bitumen from oil sands, has been established. These developments, and others, caused the SEC's reporting requirements to lag increasingly behind the capabilities of the petroleum industry. In 2007, the SEC created the position of "Academic Engineering Fellow" to help the commission's staff examine the need for modernizing its rules and to help the staff coordinate a project to propose modifications. In October 2007, the author was retained to fill this position. After review of public comments, the SEC approved and released final rules in December 2008. The new rules were published in the Federal Register of the National Archives and Records Administration on 14 January 2009. Official guidance clarifying the intent of unclear phrases that appear in the rules may come, eventually, from the SEC. Below are comments on some possible interpretations of these guidelines, although final interpretations lie only with the SEC. See the full-length paper for references and Web addresses to view them. Major Rules Changes These rules include revised reserves definitions, which are broadly consistent with the SPE/World Petroleum Council/American Association of Petroleum Geologists/Society of Petroleum Evaluation Engineers-Petroleum Resources Management System (SPE-PRMS) definitions (although important differences remain). Disclosure requirements based on the revised definitions include the following.

Uncertainty and the Volumetric Equation

Guest editorial Every few years, the topic of correct inputs for use in the volumetric equation re-emerges. Our first recollection is from the 1997 SPE Hydrocarbon Evaluation and Economics Symposium when a dozen or so attendees remained after a session to discuss a logical flaw in a technical paper. All of those present agreed that they had been doing volumetric estimates incorrectly, due to their choice of distributions, and vowed to correct the situation. More recently, in the spring and summer of 2007, SPE's Reserves and Economics Technical Interest Group had a lively discussion on the same topic that ended without resolution and with extensive misunderstanding, in part because of perceived repetition of arguments. Now with the recent release of new reserves definitions and disclosure rules from the US Securities and Exchange Commission and comparisons with the Petroleum Resources Management System developed by SPE and other organizations, we may see more companies using probabilistic methods to estimate hydrocarbons in place, resources, and reserves, so we believe that it would be useful to reiterate the conclusion of those present at that 1997 meeting in Dallas. The crux of the issue is: What is the correct mathematical basis for establishing appropriate uncertainty distributions as inputs to a probabilistic analysis of the volumetric equation? More specifically: Should the input distribution for each reservoir parameter be based on eitherThe range of values seen in the well data for that parameter, or,The range of uncertainty in the reservoir average for that parameter? A Simple Model For illustrative purposes, consider using the volumetric equation in the form: oil initially in place (OIIP)=7758Ahφ(1−Sw)/Bo. The following discussion would also apply to other forms of the equation, such as using gross rock volume and net-to-gross ratio, for example. The total area of the reservoir, A, is 1,920 acres and 24 wells have been drilled on the basis of 80 acre spacing. The net pay, h, varies between 11 and 165 ft in the wells drilled to-date (Table 1) and statistical analysis of the net pay in the 24 wells shows that the average (mean) net pay is 81.5 ft. For the full calculation of OIIP, we would also need to consider uncertainties in area, porosity, water saturation, and the oil formation volume factor, but we will focus on net pay here.

Responsible reporting of uncertain petroleum reserves

Exploration and production (EP) efforts represent repeated trials involving many uncertain ventures, so a statistical treatment of the associated undiscovered resources is appropriate. However, when we consider the required reporting of proved reserves after a specific discovery, we are currently required to specify a volume of hydrocarbons that we are reasonably certain will be economically recovered from wells associated with that discovery. The phrase reasonable certainty is a probability statement, except that no confidence level is specified by the governing authorities. Company appraisers may be influenced that larger estimates (if defendable) benefit the value of their company shares and perhaps their status in a company, whereas various negative consequences may ensue if actual outcome turns out to be smaller than the reasonably certain estimate. We view this clash of probabilistic methods versus determinism as an illogical professional conundrum. Because deterministic parameters are not probabilistically specified, a professional's estimating ability cannot be properly measured and calibrated. Without a rigorous process for reality checking, this approach encourages unrealistic thinking about uncertain resource values and thus can facilitate technical and financial unaccountability. In fact, ill-defined standards can actually encourage unethical behavior through confusion and manipulation, obscuring boundaries between professional objectivity and conflicting incentive systems. The solution can be complex because of the many factors associated with uncertainty in subsurface parameters, product prices, government takes, and capital costs. However, the solution can be addressed by full disclosure, plus the development of a unified standard within the EP community of probabilistic reserve definitions for proved,probable, and possible reserves. Full disclosure of probabilistic reserve estimates will (1) facilitate the reality checking of estimates against analogs and natural limits, (2) help measure estimating accuracy against actual outcomes, (3) encourage improvements in future estimating accuracy and efficiency, and (4) provide transparency to the public. Until more uniform standards are developed and enforced, EP entities will continue to use resource numbers beyond the proved level as a basis for decision making, as they are more relevant for the business planning and portfolio management of their shareholders' assets.

Interview with 2009 SPE President Leo Roodhart

President's interview Leo Roodhart is Head of Strategic Innovation at Shell International. With Shell since 1980, he has worked in R&D, production engineering, business development, and innovation. Roodhart has been active in SPE for more than 25 years, most recently Director for SPE's North Sea Region, Chairperson of the Board Committee on Technical Programs and Meetings, and a member of the Board Committee on Finance and Administration. His contributions to the Society, at the local and international levels, have emphasized encouraging technology innovation. Roodhart has actively contributed to the SPE Forum Series, serving on Forum steering committees and as a member and as Chairperson of its Implementation Committee for the Eastern Hemisphere. He also has chaired the Forum Series Coordinating Committee. Roodhart has served as both Program and Section Chairperson for SPE's Netherlands Section. He has served on the program committee for Europec and on the 2001, 2003, and 2005 Offshore Europe executive committees. Roodhart chaired the first two Netherlands Applied Technology Workshops (ATWs) on Mature Reservoirs and has served on or chaired many Forum and ATW committees. He has been a member of the Distinguished Lecturer Committee and was an SPE Distinguished Lecturer during 2007–08. Roodhart is an Associate Fellow at Templeton College, Oxford University, on Strategic Innovation. He earned an MS degree in chemistry and a PhD degree in mathematics and physics from the University of Amsterdam. What would you like to accomplish during your term as SPE President? Each SPE President is just one of the links in a long chain of Presidents, each with his or her own aspirations; together they built SPE into what it is now. Even if it would be possible, and it is not, for a President to make big changes in the one year he/she has, it is probably not a good idea. That said, the SPE Board of Directors developed some time ago a Long-Range Plan to guide our Society, which is updated regularly. The current Long-Range Plan identifies key strategic issues, such as turning SPE into a truly global society; engaging young people, particularly inducing students to come select careers in our industry; and tackling such global issues as reserves definitions, capture and sequestration of CO2, and improving the industry's image.

Reserves and Resources Classification, Definitions, and Guidelines: Defining the Standard!

This article, written by Technology Editor Dennis Denney, contains highlights of paper SPE 107693, "The 2007 SPE/AAPG/WPC/SPEE Reserves and Resources Classification, Definitions, and Guidelines: Defining the Standard!," by John R. Etherington, SPE, PRA International, and John E. Ritter, SPE, Occidental Petroleum, prepared for the 2007 SPE Hydrocarbon Economics and Evaluation Symposium, Dallas, 1–3 April. In late 2004, a focused effort was begun to update the 1997 SPE/World Petroleum Council (WPC) Petroleum Reserves Definitions and the 2000 SPE/WPC/American Association of Petroleum Geologists (AAPG) Petroleum Resources Classification and Definitions. Evolution of the industry, driven by advancements in technology, the international expansion of the E&P sector, and the increasing role of unconventional resources in meeting global energy needs, drove the update. The 2007 system builds on previous industry efforts to provide sufficient guidance to achieve a high level of consistency in estimating resource quantities; it incorporates best practices identified in other international petroleum and minerals classification systems. Assessments may be conducted using deterministic and/or probabilistic methods. To satisfy requirements of the full range of industry stakeholders, the 2007 system introduces additional classification and categorization terminology. The resulting document is a set of technical guidelines that can be adopted by oil and gas companies to manage their business better. Moreover, it forms a standard that can be referenced by government agencies in defining reporting requirements. Introduction All assessments of in-place and recoverable petroleum quantities, their forecast delivery profile, and associated costs and revenues have significant inherent uncertainty. However, it is essential for future planning that governments, lenders, investors, and producers have access to consistent and reliable assessments, and that results be presented in a common format to communicate these underlying risks and uncertainties. The task of creating and maintaining the framework and language to support such communication has been assumed primarily by a consortium of professional societies: SPE, WPC, AAPG, and the Society of Petroleum Evaluation Engineers (SPEE). Their work is coordinated through the SPE Oil and Gas Reserves Committee (OGRC). The OGRC was charged to recommend revisions and clarifications to maintain a standard for petroleum evaluations. The 2007 petroleum reserves and resources classification, definitions, and guidelines has been titled the Petroleum Resource Management System (RMS) (SPE 2007) and is hereinafter referred to as SPE-RMS or simply the SPE system; this label is intended to recognize the valuable contributions of the cosponsoring organizations (WPC, AAPG, SPEE), without whose input the resulting product would not have been generated.

Global Technical, Financial Experts Discuss Reserves

Some 130 persons from 20 countries participated in the first International Multidisciplinary Reserves Conference held 24–26 June in Washington, DC, a milestone in bringing together a wide range of generators and users of oil-and-gas-reserves data throughout the industry and the financial world. Attending were engineers, geoscientists, accountants, bankers, investors, policymakers, and regulators. The event was organized by SPE and the American Association of Petroleum Geologists (AAPG), and jointly sponsored by the World Petroleum Council (WPC) and the Society of Petroleum Evaluation Engineers (SPEE). Participating bodies included the Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB), and United Nations Economic Commission for Europe (UNECE). The conference followed the March release of the Petroleum Resources Management System (PRMS), developed over a 2-year period by SPE, AAPG, WPC, and SPEE, and coordinated by the SPE Oil and Gas Reserves Committee (OGRC). PRMS consolidates, builds on, and replaces guidance contained in the 1997 SPE/WPC Petroleum Reserves Definitions, the 2000 SPE/WPC/AAPG Petroleum Resources Classification and Definitions, and the 2001 SPE/WPC/SPEE Guidelines for the Evaluation of Petroleum Reserves and Resources. The major objective in developing PRMS was to enable the industry to meet the increasingly rigorous and encompassing requirements of major stakeholders spurred by technology advances, international industry expansion, and the increasing role of unconventional resources. A "Groundbreaking" Event In his welcoming remarks, conference Cochairperson, Mike Black, vice president, Reservoir Engineering, Greystone Oil & Gas, called the conference "groundbreaking" and "long overdue." As a former director of SPE, Black represented the society as one of the two chairpersons of the event. He shared the podium with Pete Rose, founder of Rose & Associates and past president of AAPG. "We have, in fact, shared a vision for the common, urgent need to bring together all the stakeholders who have a vested interest in the accuracy and reliability of the oil and gas and resource data," Black said. Mentioning his more than 30 years in the oil industry, Black added, "It has always struck me how the simple phrase, ‘but these are proved reserves,’ can have so many different meanings to so many people." He said that most of the audience probably agreed with him that the world faces "an impending energy crisis, in which the efficiency of global energy markets is of paramount importance. That efficiency can only be facilitated by a complete, accurate, and transparent assessment of actual energy supplies." Sigurd Heiberg, chairperson of the UNECE Group of Experts on the Harmonization of Fossil Energy and Mineral Resources Terminology, made a presentation on the importance that a common resource terminology holds for energy policies, government and business processes, and financial reporting. Heiberg, who is a project manager for Statoil, described the goal of "a common global terminology where the issues of communication will diminish drastically….

SPE Approves New Reserves/Resources Document

In the December issue of JPT, I reported on the progress that had been made developing a revised set of reserves and resources definitions. I am now honored to announce that the 2007 SPE/World Petroleum Council (WPC)/American Association of Petroleum Geologists (AAPG)/Society of Petroleum Evaluation Engineers (SPEE) Petroleum Resources Management System (PRMS) has been approved by the SPE Board of Directors. The new system was approved previously by the respective boards of WPC, AAPG, and SPEE, and it is now posted on the spe.org website. Based on results of extensive industry review and broad consultation, PRMS represents the current consensus of the international stakeholders regarding resource evaluations. Coordinated by the SPE Oil and Gas Reserves Committee (OGRC), the new system consolidates, builds on, and replaces guidance previously contained in the 1997 SPE/WPC Petroleum Reserves Definitions, the 2000 SPE/WPC/AAPG Petroleum Resources Classification and Definitions, and the 2001 SPE/WPC/SPEE Guidelines for the Evaluation of Petroleum Reserves and Resources. It should be noted that the last of these documents remains a critical reference tool in support of the new PRMS. The new document's Appendix A, a Glossary of Terms Used in Resources Evaluations, updates and replaces that published in 2005. The People and the Process By late 2004, it became increasingly clear to many users that the current guidance was not sufficiently rigorous or encompassing to meet the requirements of industry stakeholders because of advancements in technology, the international expansion of the industry, and the increasing role of unconventional resources. It was clear that revisions were required to achieve a high level of consistency in estimating resource quantities. The OGRC took the lead in the update, seeking to obtain stakeholder input to fashion a system that would meet industry needs. The primary components of that process includedDeveloping a mapping document (available on the SPE website) to identify best practices in eight other targeted definition systems, completed in December 2005.Creating eight drafts of the document, primarily within the OGRC, though with input from cosponsoring organizations, former OGRC members, and other industry professionals.Providing an extended industry review period of approximately 100 days. During this period, more than 120 letters were mailed to different stakeholder groups requesting comment, more than 30 presentations were made worldwide to provide awareness of the process, and emails were sent to individual SPE members, in addition to postings on the SPE and AAPG websites.Consolidating comments by the OGRC and drafting three additional versions of the system, leveraging advice and input from representatives of the cosponsor groups. In all, the process took more than 2 years' time to complete, dating from the creation of OGRC Mapping and Definitions Subcommittees in December 2004.

Reserves Estimation: The Challenge for the Industry

Distinguished Author Series articles are general, descriptive representations that summarize the state of the art in an area of technology by describing recent developments for readers who are not specialists in the topics discussed. Written by individuals recognized as experts in the area, these articles provide key references to more definitive work and present specific details only to illustrate the technology. Purpose: to inform the general readership of recent advances in various areas of petroleum engineering. Introduction Reserves estimation is one of the most essential tasks in the petroleum industry. It is the process by which the economically recoverable hydrocarbons in a field, area, or region are evaluated quantitatively. Downward revisions of U.S. Security and Exchange Commission (SEC)-booked reserves by some oil companies in 2004 brought the topic under public scrutiny. Confidence in reserves disclosures became a public issue, and there were calls from investors and lending institutions for more-reliable reserves estimates. Oil companies have responded by revisiting reserves-estimation procedures, and SPE, American Association of Petroleum Geologists (AAPG), World Petroleum Council (WPC), and Society of Petroleum Evaluation Engineers (SPEE) have launched a joint project to train reserves evaluators. A major goal in this initiative is preparation of training modules that represent industry's "recommended practices." Long before the issue caught the public's attention, however, reserves estimation was a challenge for the industry. The challenge stems from many factors, tangible and intangible, that enter the estimation process, and judgment is an integral part of the process. Uncertainty, along with risk, is an endemic problem that must be addressed. Consequently, the industry's record of properly predicting reserves has been mixed. Despite appeals from some quarters, there currently is no standardized reserves-estimation procedure. The purpose of this paper is to discuss various issues related to reserves, review reserves-estimation procedures, and make suggestions for improvements. Emphasis will be placed on reserves evaluation at the preproduction stage in which estimation errors generally have the highest economic effect. The discussed procedures pertain to conventional oil and gas reserves. Specific rules relating to booking reserves for regulatory purposes are outside the scope of this paper. Reserves Definition and Classification Fig. 1 shows how reserves are part of the petroleum resource base. Under the SPE/WPC definitions, "Reserves are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward" (Petroleum Reserves Definitions 1997). Commerciality implies commitment or expected commitment to develop reserves within a reasonable time frame. Depending on the degree of uncertainty, three main classes of reserves are recognized: proved, probable, and possible, the last-named two collectively called unproved. Proved reserves are those quantities that have reasonable certainty of being recovered, indicating a high degree of confidence. Proved reserves may be developed or undeveloped. Probable reserves are more likely than not to be recoverable, while possible reserves are less likely to be recoverable than probable reserves. Geological and engineering data form the basis of determination. Proved reserves assume recoverability under current economic conditions, operating methods, and government regulations. For unproved reserves, recoverability may be tied to future economic conditions and technology.

Petroleum Reserves and the Credibility Gap

This paper focuses on studying the available definitions of petroleum reserves and the resulting credibility gap. The credibility gap refers to the apparent disparity amongst the reported petroleum reserves values. There are two main reasons for this gap; the first reason is that there is no consistent definition of petroleum reserves. In fact there are many definitions available today in the oil industry. In addition, the wording of each definition is sufficiently vague allow- ing evaluators a great deal of latitude when classifying reserves. Furthermore, oil companies tend to use definitions that fulfill their specific goals. This misuse, along with the companies' pressure to look good in the financial market, has led to a bending of the rules. Consequently, it is necessary to adopt a consistent definition with clear wording in order to enhance communication and to avoid a situation where the definition of petroleum reserves loses all meanings. The second reason for the gap is that petroleum reserves are not measurable quantities; they are only estimates. As a matter of fact there is no single estimation method and there is always uncertainty in each method. This reason coupled with the countries' underlying poli- tics and prevailing economics govern the credibility of the reported reserves values. Therefore, it is necessary to provide a methodology for estimating reserves on a common basis in order to improve the support for financial reporting and to attract the public financing.

Guest Editorial: SPE Seeks Industry Comment on Updated Reserves Definitions

SPE has posted the proposed 2007 Petroleum Reserves and Resources Classification, Definitions, and Guidelines at www.spe.org/reserves for member and general industry comment. This update culminates 2 years of work by the SPE Oil and Gas Reserves Committee to establish internationally accepted guidelines. The draft document is sponsored jointly with the World Petroleum Council (WPC), American Assn. of Petroleum Geologists (AAPG), and the Soc. of Petroleum Evaluation Engineers (SPEE). The sponsoring organizations are seeking broad international input from their membership by 1 February 2007 before presenting the definitions to their boards for final approval. Publication of the guidelines could occur as early as March 2007. While individual opinions are welcome, it is preferable if organizations would critically review the proposed system and then submit a consolidated opinion based on internal consensus. Please address your comments by e-mail to ogr@spe.org. A Necessary Update The proposed system would update and replace the current guidelines as contained in the 1997 SPE/WPC Petroleum Reserves Definitions and the 2000 SPE/WPC/AAPG Petroleum Resources Classification and Definitions. These guidelines are now in common use internationally within the petroleum industry and provide a measure of comparability and reduce the subjective nature of resources estimation. However, the technologies employed in petroleum exploration, development, production, and processing continue to evolve and improve. In addition, the growth of the international petroleum industry and the expanding contribution of unconventional hydrocarbons to the worldwide resource base necessitated a re-examination of the existing system. SPE works closely with other organizations to maintain the definitions, and it issues periodic revisions to keep current with evolving technologies and changing commercial opportunities. In updating the definitions, SPE's Oil and Gas Reserves Committee completed a comparison of classifications and definitions used in eight other systems worldwide to identify best practices (see box next page). The primary updates include:The system is project-based.The class is based on the project chance of commerciality.Categorization is based on quantities recovered by applying a defined project to a reservoir. The base case for assessing project economics uses evaluator's forecast of future conditions (including prices and costs, technology available, environmental standards, fiscal terms, and regulatory constraints).Guidelines are applicable to unconventional resources (including bitumen, oil shale, coalbed methane, and gas hydrates). These definitions and guidelines are designed to establish technically based reserves and resources evaluation standards for the international petroleum industry. While, ideally, future national reporting and regulatory disclosure agencies would reference these standards, the guidelines do not replace those currently required by these agencies. Significant Achievements Other significant achievements have been made this year in moving toward creating a common language for describing reserves and resources.

Significant Differences in Proved Reserves Estimates Using SPE/WPC Definitions Compared to United States Securities and Exchange Commission Definitions

Summary A casual reading of the SPE/WPC (World Petroleum Congresses) Petroleum Reserves Definitions (1997) and the U.S. Securities and Exchange Commission (SEC) definitions (1978) would suggest very little, if any, difference in the quantities of proved hydrocarbon reserves estimated under those two classification systems. The differences in many circumstances for both volumetric and performance-based estimates may be small. In 1999, the SEC began to increase its review process, seeking greater understanding and compliance with its oil and gas reserves reporting requirements. The agency's definitions had been promulgated in 1978 in connection with the Energy Policy and Conservation Act of 1975 and at a time when most publicly owned oil and gas companies and their reserves were located in the United States. Oil and gas prices were relatively stable and virtually all natural gas was marketed through long-term contracts at fixed or determinable prices. Development drilling was subject to well-spacing regulations as established through field rules set by state agencies. Reservoir-evaluation technology has advanced far beyond that used in 1978; production-sharing contracts were uncommon then, and probabilistic reserves assessment was not widely recognized or appreciated in the U.S. These changes in industry practice plus many other considerations have created problems in adapting the 1978 vintage definitions to the technical and commercial realities of the 21st century. This paper presents several real-world examples of how the SEC engineering staff has updated its approach to reserves assessment as well as numerous remaining unresolved areas of concern. These remaining issues are important, can lead to significant differences in reported quantities and values, and may result in questions about the "full disclosure" obligations to the SEC.

Stand Tall and Speak Up (December 2005)

As SPE members we have a lot to be happy about. Our Society is thriving. Our membership is approaching 65,000, which includes some 14,000 students, thanks in large part to Halliburton’s generous sponsorship of student dues. Also, 2005 SPE President Giovanni Paccaloni’s passion for young professionals has created many new programs to entice new graduates to take advantage of the low membership fees for those under the age of 30. Moreover, we are an increasingly global Society, with over half of our members outside the U.S., 156 sections in 62 countries, members in more than 100 countries, and 131 student sections in 42 countries. Our eLibrary contains more than 40,000 papers. Together we have accomplished a lot, but that doesn’t mean we should rest on our laurels. To better serve our membership, the SPE Board of Directors, past SPE Presidents, and other leaders of our Society have worked together to draft a new 10-year plan for the period 2005–15. In the past, four Long Range Plans have been created, covering proposed strategies, tac-tics, and activities to guide the Society forward. The plans have covered the periods 1975–85, 1982–92, 1991–2000 (adopted in 1994), and 2000–10. These plans have played a major role in making SPE the financially sound, technically robust, and internationally respected and valued organization it is today. A long-range plan guides and focuses individual decisions by placing them in the framework of long-term goals. A plan also channels the energy and resources of the Society’s members and staff into addressing the highest priority goals. Our industry is faced with many challenges, including the “big crew change,” the constant pressures of a commodity business to accomplish more with fewer people, rapidly changing technology, and a public that both worries that the world is running out of oil and fears that continued use of fossil fuels will create an environmental disaster. SPE’s Long Range Plan must simultaneously address all of these issues. Let me share with you some of the things in the plan that I think are most important. Programs to attract young people to the industry and to train and retain young members. Programs about reserves definitions and classifications for industry experts, nonexperts in the industry, and the public, including investors, to build support for new reserves and resources standards and to improve public understanding of the future of our industry.

Creating a Universal Standard for Evaluating Reserves

SPE has been a leader in developing petroleum reserves and resources definitions that have become the industry standard for evaluating petroleum reserves, providing a sound basis for improving the consistency in reserves and resource estimation and reporting worldwide. Now SPE is taking another step forward, envisioning a universal standard that could be adopted by international financial, regulatory, and reporting bodies, as well as the oil and gas industry. Forming the foundation for this standard are the petroleum reserves definitions approved in 1997 by SPE and the World Petroleum Council (WPC) and the resources definitions approved by SPE, WPC, and AAPG in 2000. This effort is being led within SPE by its Oil and Gas Reserves Committee, of which I am honored to serve as Chairperson. Our goal is to review the existing set of definitions and guidelines in light of those current best practices that provide professionals with a common understanding of reserves and resource classification and terminology. Any potential changes should result in a more accurate global picture of current prospects and future energy supplies for the public. In the absence of a comprehensive and current code, individual countries and companies are using their own reserves evaluation systems, making global comparisons difficult. This update is part of SPE’s ongoing effort to achieve worldwide use of standard reserves definitions. SPE’s Oil and Gas Reserves Committee has helped create some of the most significant industry reference documents on reserves that are in use today (see documents at www.spe.org). This standing committee is made up of 11 members who have reserves expertise and represent a wide geographic cross section. Six observers from a diverse group of societies and agencies also provide other industry perspectives and guidance to the committee. The reserves committee completed the first phase of the definitions review by producing a glossary that provides a common and consistent understanding of terms. This glossary required several years of work to create, and it was posted on the SPE website in January 2005 (available at www.spe.org/spe/jsp/basic/ 0,,1104_1730,00.html). The committee is now focused on comparing or “mapping” the classifications and definitions that are used in other worldwide systems for regulatory government reporting or company internal resource asset management. These are the U.S. Securities and Exchange Commission; U.K. Statement of Recommended Practices; Canadian Security Administrators; Russian Ministry of Natural Resources; China Petroleum Reserves Office; Norwegian Petroleum Directorate; U.S. Geological Survey; and the United Nations Framework Classification. By understanding the relationships between these different sets, it will be possible to identify and leverage best practices that could potentially be incorporated into a new set of definitions. The committee made a report on the mapping process at the SPE Board of Directors meeting in October, and the Board approved posting the mapping document to the SPE website.

COAL SEAM GAS EXPLORATION, DEVELOPMENT AND RESOURCES IN AUSTRALIA: A NATIONAL PERSPECTIVE

A total of 2,223 PJ of proved plus probable gas reserves has been identified in coal seam gas fields and pilot production areas in Australia. The production of coal seam gas is rapidly growing, reaching about 40 PJ per year in 2003. A total of more than 108 PJ will be supplied annually by the end of 2007 under existing contracts, representing about 9% of Australia’s projected total primary consumption of natural gas. About two thirds of Queensland’s natural gas consumption will be met by coal seam gas by the end of 2007. Further expansion of the coal seam gas industry depends largely on the medium-term production performance of the pioneering production projects now in operation.The long-term production performance of a coal seam gas well is not well understood. Analogues of conventional natural gas have often been applied to the estimation process of coal seam gas reserves without proper consideration of the fundamental differences in trapping mechanisms and production techniques. Definitions of petroleum reserves recommended by various organisations are not always applicable to coal seam gas, and the inconsistent application of reserves definitions may have resulted in inconsistencies in reserves reporting in Australia.

National Instrument 51-101 (NI 51-101) Reserves Reconciliation-Part 1

Introduction Because of the uncertainty in estimating oil and gas reserves, the exact quantity of hydrocarbons to be recovered will never be known until production reaches the economic limit and the reservoir is abandoned. It is, however, necessary from time to time to estimate the reserves to be recovered throughout the producing life of a field, and to verify that the reserves are properly estimated and classified according to the definitions and guidelines specified in the Canadian Oil and Gas Evaluation Handbook, "COGEH." The testing procedure that is used is referred to as a "Reserves Reconciliation" and should be performed at least annually or more often if there are material changes to reserves estimates. A reserves reconciliation is the single most powerful tool in tracking changes in oil and gas reserves estimates. The process keeps track of the flow of reserves into and out of a company's reserves inventory. Reserves can be added to inventory by:Discovery of new reservoirs;Extensions of existing reservoirs;Installation of improved recovery schemes;Infill drilling projects; and,Acquisitions of reserves. Reserves can be deducted from inventory by:Dispositions of reserves; and,Production of reserves. Reserves can fluctuate within inventory because of:Economic changes; and,Technical revisions. Changing economic conditions may cause either additions or reductions to reserves as economic perceptions of the future change. Technical revisions occur due to estimation procedures, resulting from moving reserves from one classification to another, obtaining new information, and, unfortunately, due to poor geological and engineering reserves estimation practices. Technical revisions form the main focus of this paper. Basic Concepts of Reserves Definitions Before a reserves reconciliation can be performed, an evaluator must have a sound knowledge of reserves definitions and their TABLE 1: Reserves classifications and notations. Available In Full Paper. application. As detailed in the COGEH, reserves estimates are classified according to the following criteria:Certainty or uncertainty (Proved, Probable, Possible);Production status (Producing, Non-Producing); and,Development stage (Developed, Undeveloped). These classifications are summarized in Table 1 along with generally accepted notations for each classification. The objective of estimating reserves is to establish the "best estimate" of the reserves to be recovered which, according to the COGEH definitions, is the proved + probable (2P) reserves. The proved (1P) and proved + probable + possible (3P) reserves estimates are conservative and optimistic estimates, respectively, which provide a measure of the central tendency about the 2P reserves estimate. When there is a wide range between the 1P and 3P reserves estimates, this indicates a high degree of uncertainty. When the range is very small, there is a low degree of uncertainty. Generally, a high degree of uncertainty exists in the early stages of development of an entity, and this uncertainty decreases (i.e., certainty increases) with time as more and more information becomes available, as illustrated in Figure 1.

Reservoir-Simulation Models for Use in Reserves Certification

This article, written by Technology Editor Dennis Denney, contains highlights of paper SPE 71430, "The Adaptation of Reservoir-Simulation Models for Use in Reserves Certification Under Regulatory Guidelines or Reserves Definitions," by M.R. Palke and D.C. Rietz, Ryder Scott Co., originally presented at the 2001 SPE Annual Technical Conference and Exhibition, New Orleans, 30 September-3 October.

Mineral resources and mineral reserves: progress on international definitions and reporting standards

Substantial progress has been made over the past ten years in the development of uniform national and international standards covering the definition, estimation and public reporting of mineral resources and mineral reserves. Agreement reached between the major participating countries includes the requirement that a 'Competent Person' prepare and approve the publication of mineral resources and reserves. Most national regulatory organizations have accepted the new standards and have included them in the rules that must be followed by mining companies operating under their jurisdiction. These developments are the result of a concerted effort on the part of professional societies, national regulatory agencies, international organizations and many dedicated individuals.The historical development of these standards is summarized and the accepted definitions of mineral resources and mineral reserves are discussed, as are the definition and role of the Competent Person. Additional effort is needed before the international standards are fully understood, accepted and followed by mining companies, regulatory agencies, the investment community and the general public. The steps that are being taken to develop an international code are outlined.

Probabilistic Reserves! Here at Last?

Summary Recently, SPE and the World Petroleum Congresses (WPC) modified earlier definitions of reserves for the industry. Through much lobbying about improving the definitions, the committees generally clung to the past. In truth, reserves have always been about probability because there has always been uncertainty as to proved, probable, and possible reserves. This paper proposes to dust off some of the mystery about how to deal with reserves probabilistically and correct some common procedures that do not follow the laws of probability and thus produce the wrong answer. For example, despite the reasonableness of the rule, it is illegal to add proved reserves from wells to get proved field or reservoir reserves. Every engineer who uses that method shortchanges his client and misleads the investors.