Seminar For Reserves Estimators

Ryder Scott Company
Petroleum Consultants
Houston Denver Calgary
Seminar for Reserves Estimators
Resource and Reserve Classification Systems - Definitions
Bogotá, Colombia
March, 2012
1
PRESENTATION OUTLINE
 THE 2007 SPE/WPC/AAPG/SPEE RESOURCES MANAGEMENT

SYSTEM
 McKELVEY DIAGRAM
 FRAMEWORK
 PRINCIPLES
 CRITERIA FOR RESOURCE CLASSIFICATION
 PROJECT MATURITY (SUBCLASSES)
 PROSPECTIVE RESOURCES
 CONTINGENT RESOURCES
 RESERVES
© Ryder Scott Company, L.P. 2 2
McKELVEY DIAGRAM
(adapted)

SPE/WPC vs. SEC Reserves Standards
 SEC
 Securities & Exchange Commission (SEC)
 SPE/WPC/AAPG/SPEE
 Society of Petroleum Engineers (SPE)
 World Petroleum Congress (WPC)
 American Association of Petroleum Geologists (AAPG)
 Society of Petroleum Engineering Evaluators (SPEE)
 Repsol YPF
 Books and discloses proved reserves according to the SEC
 Books probable and possible reserves according to the SPE (No Disclosure)
Proved Reserves Probable Reserves Possible Reserves
SEC - -
SPE/WPC SPE/WPC SPE/WPC
1P SEC Voluntary Disclosure of Probable and Possible Reserves
2P
3P
Basic Principles and Definitions
Ref.: Section 1.0 PRMS
 “The estimation of petroleum resource quantities involves the

interpretation of volumes and values that have an inherent degree
of uncertainty”
 Use of a consistent classification system enhances:

 Comparisons between projects and group of projects
 Comparison of total company portfolios
 Such system must consider:

 Technical factors
 Commercial factors

Resources
 Quantities of hydrocarbons naturally

occurring on or within the earth’s crust
 Encompasses all petroleum quantities

 Discovered or undiscovered
 Recoverable or unrecoverable
 Quantities previously produced
 Conventional and currently classified
as unconventional accumulations

Resources Classification Framework

Importance of TOTAL Resource Base
 Recognizes all upside potential
 Better portrayal of total company value
 Better allocation of capital and human resources
 Drives technology programs
 Challenges feasibility and sustainability
 Drives portfolio decisions
 Depicts national and corporate inventories

Project Based System
The project represents the link between the petroleum accumulation

and the decision-making process, including budget allocation.
Project Based Resources Evaluation
 Classification framework based on a Project

 A project may develop one or many reservoirs
 One reservoir may be developed by more than one project
 Projects classified by commerciality and maturity
 Resources and reserves categorized according to technical certainty
 One project may have quantities in several resource or reserve

categories
 Further classification dependent on commitment and project timing
© Ryder Scott Company, L.P.10 10

Discovery and Commercial Criteria
Ref.: Sections 2.1.1, 2.1.2 & 2.1.3 PRMS
Commerciality
Discovery

A Few Basic Terms
Resources vs. Reserves
PRODUCTION  The term “reserves” is
generally applied to the
COMMERCIAL
RESERVES
discovered quantities of
TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)
petroleum anticipated to be
1P 2P 3P
DISCOVERED PIIP
Increasing Chance of Commerciality

Proved Probable Possible
commercially recoverable
Classify by Chance of
from known accumulations
Commerciality
SUB-COMMERCIAL
CONTINGENT
RESOURCES
1C 2C 3C
from a given date forward
under defined conditions.
UNRECOVERABLE
 The term “resources” is

UNDISCOVERED PIIP
PROSPECTIVE
generally applied to all

RESOURCES
quantities of petroleum
Low Best High
Estimate Estimate Estimate
UNRECOVERABLE (recoverable and

Range of Uncertainty unrecoverable) naturally
Not to scale
occurring on or within the
Categorize estimates based on Earth’s crust, discovered
Uncertainty of sales volumes and undiscovered, plus
those quantities already
produced.
Source: SPE-PRMS

PRODUCTION
 PRODUCTION are those quantities of cumulative

petroleum that has been recovered as a given date
 Generally measured and not estimated but still requires
engineering analysis

PROSPECTIVE RESOURCES
 PROSPECTIVE RESOURCES are PRODUCTION
those quantities of petroleum
COMMERCIAL
RESERVES
which are estimated, as of a

1P 2P 3P
DISCOVERED PIIP

given date, to be potentially
SUB-COMMERCIAL
recovered from undiscovered
CONTINGENT
RESOURCES
accumulations.
1C 2C 3C
UNRECOVERABLE
Evaluated according to
UNDISCOVERED PIIP
PROSPECTIVE
 RESOURCES
their chance of discovery

Low Best High
and,
UNRECOVERABLE
Range of Uncertainty
Not to scale
 assuming a discovery, the  Plays
estimated quantities of  Leads

hydrocarbon that would be  Prospects
recovered under
appropriate development
projects.
CONTINGENT RESOURCES
PRODUCTION
 CONTINGENT RESOURCES are
COMMERCIAL
RESERVES
those quantities of petroleum

1P 2P 3P
DISCOVERED PIIP

estimated, as of a given date, to
SUB-COMMERCIAL
CONTINGENT
be potentially recovered from

RESOURCES
known accumulations by application

1C 2C 3C
UNRECOVERABLE
of development projects but which
UNDISCOVERED PIIP
PROSPECTIVE
are not currently considered to be

RESOURCES
Low Best High
commercially recoverable.
UNRECOVERABLE
Data gathering and performance

▬
Not to scale
analyses to clarify and then ▬ They may include:

mitigate the conditions that
prevent commerciality  Projects with no viable market
 Projects dependent on
technology under development
 Projects with undetermined
commerciality
Contingent Resources Economic Status
Ref.: Section 2.1.3.3 PRMS
 Contingent Resources may be broadly divided into two

groups based on their economic viability:
 Marginal Contingent Resources: Technically feasible

projects that are either currently economic or
projected to be economic under reasonable
assumptions but are not committed for development.
 Sub-Marginal Contingent Resources: Technically

feasible development projects would not be economic
and/or other contingencies need to improve.

RESERVES
RESERVES are those quantities

PRODUCTION

COMMERCIAL
RESERVES
of petroleum anticipated to be

1P 2P 3P
DISCOVERED PIIP
commercially recoverable by

application of development
SUB-COMMERCIAL
CONTINGENT
RESOURCES
projects to known accumulations

1C 2C 3C
from a given date forward

UNRECOVERABLE
UNDISCOVERED PIIP
PROSPECTIVE
under defined conditions.

RESOURCES
Low Best High

Reserves must further satisfy four

UNRECOVERABLE
 Range of Uncertainty
criteria based on the development

Not to scale
project(s) applied :
 discovered,
 recoverable,
 commercial, and
 remaining (as of the evaluation

date)
UNRECOVERABLE RESOURCES
 UNRECOVERABLE RESOURCES are those quantities of discovered

and undiscovered petroleum initially in place which are estimated,
as of a given date, not to be recoverable by development projects
▬A portion may become recoverable in the

future

Range of Commerciality
Ref.: Section 2.2.1 PRMS

Determination of Discovery and Commerciality
Ref.: Sections 2.1.1, 2.1.2 & 2.1.3 PRMS
Commerciality Risk hurdle
Discovery Risk hurdle

Determination of Discovery Status
 Established significant quantity of potentially

moveable hydrocarbons through drilling
 Known accumulation
 Sufficient quantity of petroleum to
justify in-place estimations and
monetization studies
 Determination of potentiality through
 Testing
 Sampling
 Logging
 Portion may be classified as Contingent
Resources, Reserves or Discovered
Unrecoverable
Determination of Commerciality
 Discovered recoverable volumes may be considered commercially

producible, and thus Reserves, if entity claiming commerciality has
demonstrated firm intention to proceed with development based on:
 No more contingencies
 Reasonable timetable for development
 Reasonable assessment of future economic
conditions
 Reasonable market expectations
 Evidence that facilities are or will be made
available
 Evidence that legal, contractual, social and
environmental concerns will be met
 The project meets evaluator’s economic criteria
 Commitment from the company, partners, and
government approvals must be reasonably
expected
Determination of Commerciality
 To be included in the Reserves class, there

must be high confidence in the commercial
producibility of the reservoir:
 Supported by actual production or formation tests
 In certain cases supported by well logs and/or core
analysis if analogous to reservoirs in the same area
that are producing or have demonstrated the ability to
produce on formation tests

Reasonable Timetable
 Initiation of development within 5 years as a

benchmark, a longer time frame may be applicable in
special cases:
 Gas cap waiting on associated oil depletion
 Major projects with longer development schedules
 Corporate strategic timing priorities
 Other clearly documented exceptions
 Contingent resources if development timing is not
justified

SUB-CLASSIFICATIONS

Project maturity Sub-Classes
PRODUCTION
On Production
COMMERCIAL
Commerciality
Approved for

DISCOVERED PIIP
RESERVES Development
Justified for
Development
SUB-COMMERCIAL
Development Pending
CONTINGENT Development Unclarified
RESOURCES or On Hold
Development
not Viable
UNRECOVERABLE
UNDISCOVERED PIIP
Prospect
PROSPECTIVE Discovery
RESOURCES Lead
Play
UNRECOVERABLE

Project Maturity Sub-Classes: Play
 Project associated with prospective

trend
 Requires additional data
acquisition and/or evaluation
 Activities focused on identifying
leads or prospects for more
detailed analysis
 Chance of discovery, range of
potential recovery under
hypothetical development scenarios

Project Maturity Sub-Classes: Lead
 Poorly defined potential

accumulation
 Requires more data acquisition or
evaluation
 Activities include further analysis
to confirm whether or not the
lead can be mature into a
prospect
 Chance of discovery, range of
potential recovery under feasible
development scenarios

Project Maturity Sub-Classes: Prospect
 Potential accumulation sufficiently

defined as a viable drilling target
 Project focus on assessing chance
of discovery
 Evaluating range of potential
recoverable quantities under
commercial program

Project Maturity Sub-Classes: Development Not
Viable
 Discovery with limited production
potential
 No current plans to appraise
 Project not seen as having
commercial potential for eventual
development
 Keep theoretical recoverable
quantities in the event of major
technology or commercial
conditions
 Project decision gate not to
undertake any further actions for
the foreseeable future

Company Prospector
 Company prospector after

receiving “Development
not Viable” status on pet
project
a t
h
o tt
isn a ll!
sk a e r
a t
Al d a f
ba

Project Maturity Sub-Classes: Development Unclarified
or on Hold
 Discovery with activities on hold
and commercial development may be
significantly delayed
 Project seen as having eventual
commercial development potential
 Pending removal of significant
contingencies
 Substantial further appraisal is
necessary to clarify potential
 Project decision gate proceed or
suspend appraisal with temporarily
suspension outcome

Project Maturity Sub-Classes: Development Pending
 Discovery with enough hydrocarbons

to justify ongoing activities to
confirm commercial development in
the foreseeable future
 Reasonable potential for
development subject to
confirmation with ongoing data
acquisition and investigations
 Critical contingencies identified
and reasonable expectations to
resolve them
 Disappointing appraisal may lead
to downgrading to “On-hold” or
“Not Viable”
 Project decision gate is decision to
move forward with appraisal and
confirmation
Project Maturity Sub-Classes: Justified for
Development
 Projects justified economically

based on reasonable commercial
forecast
 Reasonable expectation that all
approvals will be obtained
 Development plan with sufficient
detail to support claim of
commerciality
 Reasonable expectations to obtain
regulatory approvals and sales
contracts
 Project decision gate is
notification of project maturity to
proceed with development at that
point in time

Company Prospector
Company prospector after

receiving “Justified for
Development” status on
pet project ng,
a lo
a ll v es
it se r
e w r e
n re s!
Ik we rc e
se s o u
t ho r e
not

Project Maturity Sub-Classes: Approved for
Development
 All approvals obtained, capital

funds committed & project is
underway
 Certainty that project is going
forward
 No outstanding approvals or sales
contracts
 Committed budget should be part
of the approved budget
 Project decision gate is to start
investments and construction

Project Maturity Sub-Classes: On Production
 Project is on production and

selling hydrocarbons
 Receiving income versus
simply a completed project
 Project chance of
commerciality is 100%
 Project decision gate is the
decision to initiate
commercial production

Reserves Status
 Recoverable quantities may be subdivided on the funding

and operational status of wells and associated facilities
into:
 Developed
▬ Producing
▬ Non-producing (Shut in or Behind Pipe)
 Undeveloped
▬ Expected to be recovered through new investments

Reserves Classification and Status
Reserve Classification
(Proved, Probable, or Possible)
Developed Undeveloped
Producing Non-Producing
Shut-in Behind-Pipe


Ref.: Section 2.2.1 and 4.2 PRMS
 Deterministic methodology
 Discrete estimate(s) is made based on known geoscience, engineering and
economic data
 Probabilistic methodology
 Known geoscience, engineering and economic data are used to generate a
continuous range of estimates and their associated probabilities
Probabilistic Deterministic
P10
3P Proved + Probable
Less likely than probable
+ Possible
P10
Probability
P50
2P Less likely than proved,
Proved + Probable
P50 more likely than possible
P90
1P Proved Reasonable certainty
P90
Reserve Volume

Proved Reserves
 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
 Proved reserves require

 Facilities to process and transport those reserves are
operational or
 there is reasonable expectation they will be available
Probable Reserves
 Probable reserves are those quantities of petroleum

which by analysis of geoscience and engineering data:
 Can be estimated to be recovered most likely than not but are
less likely to be recovered than proved reserves but more certain
than possible
 Typical examples include:
 Volumes below lowest known hydrocarbons
 Incremental recovery factors
 Untested zones without good analogies
 Reservoirs with questionable log analysis
 Fault blocks without penetrations
 Down-spacing with questionable drainage patterns
 Alternative log or performance interpretations
Possible Reserves
 Possible reserves are those additional reserves which

analysis of geoscience and engineering data indicate are
less likely to be recovered than probable reserves.
 Typical examples include:
 Areas removed from geologic control
 Geophysically defined limits
 Questionable log analysis
 Riskier unpenetrated fault blocks that do not qualify
as probable
 Enhanced recovery possibilities

Category Definitions & Guidelines
 Contingent Resources can be presented by either

 Deterministic analysis and/or
 Probabilistic analysis
 Uncertainty equivalents for reserves are as follows:

 Low estimate = 1C
 Best estimate = 2C
 High estimate = 3C
 Without new technical data, there should be no change in

distribution of technically recoverable volumes when projects are
reclassified from contingent resources to reserves

Category Definitions & Guidelines
 Prospective Resources can be presented by either

 Deterministic analysis and/or
 Probabilistic analysis
 Uncertainty equivalents for reserves are as follows:

 Low estimate
 Best estimate
 High estimate

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Ryder Scott Company

Seminar for Reserves Estimators

Resource and Reserve Classification Systems - Definitions

 THE 2007 SPE/WPC/AAPG/SPEE RESOURCES MANAGEMENT

© Ryder Scott Company, L.P. 3 3

 “The estimation of petroleum resource quantities involves the

 Use of a consistent classification system enhances:

 Such system must consider:

© Ryder Scott Company, L.P. 5 5

 Quantities of hydrocarbons naturally

 Encompasses all petroleum quantities

© Ryder Scott Company, L.P. 6 6

© Ryder Scott Company, L.P. 7 7

 Recognizes all upside potential

 Better portrayal of total company value

 Better allocation of capital and human resources

 Drives technology programs

 Challenges feasibility and sustainability

 Drives portfolio decisions

 Depicts national and corporate inventories

© Ryder Scott Company, L.P. 8 8

The project represents the link between the petroleum accumulation

 Classification framework based on a Project

 Projects classified by commerciality and maturity

 Resources and reserves categorized according to technical certainty

 One project may have quantities in several resource or reserve

 Further classification dependent on commitment and project timing

© Ryder Scott Company, L.P.10 10

© Ryder Scott Company, L.P.11 11

Increasing Chance of Commerciality

 The term “resources” is

generally applied to all

UNRECOVERABLE (recoverable and

© Ryder Scott Company, L.P.12 12

 PRODUCTION are those quantities of cumulative

© Ryder Scott Company, L.P.13 13

 PROSPECTIVE RESOURCES are PRODUCTION

those quantities of petroleum

which are estimated, as of a

TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

Increasing Chance of Commerciality

their chance of discovery

 assuming a discovery, the  Plays

estimated quantities of  Leads

 CONTINGENT RESOURCES are

those quantities of petroleum

TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

Increasing Chance of Commerciality

estimated, as of a given date, to

be potentially recovered from

known accumulations by application

of development projects but which

are not currently considered to be

Low Best High

Data gathering and performance

analyses to clarify and then ▬ They may include:

 Contingent Resources may be broadly divided into two

 Marginal Contingent Resources: Technically feasible

 Sub-Marginal Contingent Resources: Technically

© Ryder Scott Company, L.P.16 16

RESERVES are those quantities

TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

Increasing Chance of Commerciality