Merging PRMS and COGEH

A Status Update
by John Etherington, PRA International Ltd

Ryder Scott Canada Reserves Conference

Calgary – October 2, 2014
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 Outline
Introduction/Background

Compare the systems

Assess Potential for Convergence

Project Status & Issues

Summary
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 What’s it all About?
Its all about predicting future supply under defined conditions!
The quantity of usable resources is not fixed but changes with
progress in science, technology, and exploration and with shifts in
economic conditions. (V. McKelvey).

We need a single
international standard!

We need consistency in communicating risk and uncertainty

associated with future production and cash flows!
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Two Systems – Common Heritage
WPC 1987 SPE 1987

SPE/WPC 1997

CIM Monograph 1
(1994)
SPE/WPC/AAPG 2000

Canadian Oil & Gas

Evaluation Handbook
Vol 1: 2002 Petroleum Resources
Vol 2: 2005 (ROTR 2014)
(Vol 1 Update 2007) Management System 2007
Vol 3: 2007- 2014

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 Drivers for a Merger

Canadian Oil & Gas Petroleum Resources

Evaluation Handbook Management System

Confusing for evaluators and investors –

domestically and internationally

Looking for a single petroleum standard

Maintenance is manpower intensive

(Specific updates cascade throughout system)

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 Merger Project Started with SPEE!

They are currently “riding two horses”!

SPEE Calgary – maintain COGEH
SPEE International – co-sponsor PRMS

SPEE Merger Project Initiated June 2011

Phase 1: Complete Detailed comparison of PRMS & COGEH
a. Validate common principles
b. Clearly identify critical differences
c. Assess impact of merger

Study Conclusion – September 2011

: A merger is feasible!

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 Advantages for Merger
What each party brings to the table:

• COGEH
– Established and tested in a regulatory system
– Extensive guidelines

• PRMS
– “SPE” branding is internationally recognized
– Considerable resources through SPE & partners

Common record of fostering good practices

in resource evaluations

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 Comparison of Systems
Different Perspectives

COGEH NI 51-101

Good practice guidelines

Linked to Canadian regulatory disclosures
Provides detailed guidance on reporting

PRMS
Good practice guidelines
Provide international standard – regulatory neutral
Flexibility for internal project management

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Common Classification Framework

chance of commerciality
Classify by
Categorize by uncertainty in estimates

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 Similarities
Issue COGEH PRMS
Economics Reasonable forecast prices and DCF ROR hurdle
Commitment Reserves: Must be demonstrated intent to develop
Base Case Proved Plus Probable (2P)
Scope Total Reserves and Resources (includes unconventional)
Product Reserves expressed in condition at point of sale
Proved High degree of certainty Reasonable certainty
Probable Equally likely that remaining >/< 2P (Proved + Probable)
Possible Highly unlikely to recover 3P (2P + Possible)
Probability Proved P1, P90; 2P, P50; 3P, P10
Dev/Undev. Applies to all reserves categories
Aggregation Deterministic summation above field/property level

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 Both Systems are Project-Based
Reservoir(s)

Project(s)

production

Net cash flow

net future
recoverable net
resource revenue

Each project applied to a specific reservoir(s) development under defined

conditions generates a unique set of production and cash flow schedules.
The time integration of these schedules taken to the project’s technical,
economic, or contractual limit defines the estimated recoverable resources and
associated future net cash flow forecast for each project.

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 Project Maturity Sub-classes
PRODUCTION

On Production
COMMERCIAL
TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

Approved for
RESERVES Development
DISCOVERED PIIP

Increasing Chance of Commerciality

Justified for
Development
Explicit in PRMS
Development Pending
SUB-COMMERCIAL

CONTINGENT Development Unclarified

RESOURCES or On Hold
Development
not Viable Now explicit in ROTR
UNRECOVERABLE
UNDISCOVERED PIIP

Prospect
PROSPECTIVE
RESOURCES Lead

Play

UNRECOVERABLE

Not to scale
Range of Uncertainty

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 Differences
Issue COGEH PRMS
Purpose General + Securities Reporting Project/Portfolio Management
(more extensive guidelines) (more flexibility)

The Devil is in the Details ……

Split Conditions
Testing Requirement
Improved Recovery
Development Timing
By-Products, Fuel Gas

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 “Split Conditions” Issue
COGEH applies Different Conditions for Unproved Reserves

1P 2P 3P

COMMERCIAL
PROVED RESERVES

PROBABLE POSSIBLE

PRMS uses Same Conditions for Proved & Unproved

1P 2P 3P
COMMERCIAL

RESERVES
PROVED PROBABLE POSSIBLE

The technical uncertainty in recovery from a project is

evaluated separately from its commercial maturity.
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 “Split Conditions” Issue

Example: Testing Requirements

COGEH: Must* have production or formation test to classify

reserves as proved whereas probable and possible can be
assigned based on well logs, core analysis and analogs.
* Specific exceptions

PRMS uses same requirements for Proved and Unproved.

Best to have well test but can use core and log in certain instances.

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 “Split Conditions” Issue
Example: Improved Recovery

COGEH: Possible reserves may be assigned when a planned EOR

project does not meet the requirements for Proved or Probable
……but the project can be shown to be feasible in analogs
…… but there remains doubt that the process will be successful

Mixes project risk with recovery uncertainty?

PRMS: Classify as Contingent Resources until successful

pilot completed & regulatory approval reasonably expected.
Then categorize estimates based on recovery uncertainty.

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 “Split Conditions” Issue
Example: Development Timing

COGEH:
For larger capital expenditures:
three years for proved reserves
and five years for probable reserves

PRMS: ..a reasonable time frame for attributing reserves (of any
category) is generally considered to be less than five years.

Clearly documented exceptions to these guidelines are allowed by both!

[Note SEC reporting de facto allows split conditions (> 5 yrs Probable)]

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 Production & Reserves Specifications
Lease Fuel
Common principle: all lease fuel is included in shrinkage.

.. but PRMS gives option to claim lease fuel as reserves .. if offset by

operating expense .. if allowed by regulator.

Non-Hydrocarbon By-products
Common Principle: Non-hydrocarbons quantities removed prior to sales
are not included in Reserves.

However, associated sulfur reported separately as a reserve in COGEH .

However, the revenue generated by the sale of non-hydrocarbon products

may be included in the economic evaluation of a project in PRMS

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 Comparison Results
PRMS and COGEH principles and guidelines
are very closely aligned …but…
 PRMS is more explicitly “project-focused”

 The split conditions issue may blur the boundary between

Unproved Reserves and Contingent Resources in COGEH

Similar Overall Intent / Slightly Different Focus

 Some areas need more study in both systems

 Incremental vs Scenario approaches
 Deterministic vs Probabilistic
 Aggregation Guidance

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 Merger Vision

Provide a single reference for evaluators

regardless of location of:
- the asset
- the evaluator
- the company
- the regulator

A single global reference system

- provides clarity for evaluators (& investors)
-pools the manpower for system maintenance

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How? – The Work Plan

Separate into pieces

Re-arrange & re-assemble

Isolate common issues

Examine and Compare

Same principle/different text?
Same principle/different detail?
Expands or conflicts?

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 Could it look like this?
Base Supplemental Regime Specific
Document Guidance Requirements

Detailed
Evaluation Disclosure
Guidelines
Fundamentals Guidelines
& Examples

Generic – Global
Application Template
Based on Science

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Base Document Supplemental User
(International Detailed Guidance Specific
Standards) (international)
Introduction Resource
Specific Reporting
Use of Resource Evaluations
Evaluations (CBM, Bitumen,..) Requirements

Fundamentals & Evaluator Qualifications

Principles of General Local Requirements
Evaluations
QA & Audit Guidelines
Classification General Local Requirements
& Categorization Financial Analysis & Benchmarking
General Local Requirements
Evaluation
Procedures Contracts
(Royalty, PSC’s,..)
Future Modules
Glossary Examples National
Inventories
Standard Units Mapping (USGS, NEB,..)
& Conversions Documents
“Strawman Structure” from 2011 Merger Study Report
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Merger Project Status & Issues

Phase 2: Coordinate with SPE OGRC

Review Timeline

Issues

Status & Forecast

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PRMS-COGEH Merger Project Timeline
June 2010: Present concept at SPEE AGM

March 2011: SPEE authorizes RDC to Proceed

June 2011: Initiate Project with work plan
Calgary SPEE approves plan
ASC “approves” plan
Sept 2011: Submit report to SPEE

June 2012: RDC approves report

July 2012: Calgary SPEE approves
Aug 2012: SPEE Excom approves report

Forwarded to SPE OGRC

Oct 2012: Presented to full SPE OGRC

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 Next Steps - Phase “2+”
Coordinate with SPE OGRC
Plans for future PRMS “Revisions”

COGEH/PRMS Merger PRMS partners input

“one piece of the puzzle”

Global Industry Feedback

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 PRMS-COGEH Merger

SPE OGRC PRMS Update Project

Oct 2013: Establish subcommittee to

gather broad international input

COGEH 2011 Tier 1 PRMS Issues

ROTR Update 2014 Unconventionals (SPEE M3 & 4)

[Note: COGEH needs update and
re-synch chapters – defer to PRMS *Regulatory Impact (ASX, HKEX,..)
merger]

Oct 2015: 1st Draft of PRMS Update

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SPE OGRC PRMS Update Project
Example Issues:

• Synchronizing incremental and scenario assessments

• Integrating deterministic and probabilistic

• (“inferred probabilities”)

• Quantifying risk of development

• Aggregation with and without risking

• Constant vs split conditions

• The “ 5 year rule” The elephant in the house

= SEC “rules”

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Issue – Maintaining Linked Systems
PRMS is implicitly or explicitly referenced by:

Oil & Gas

Companies

Securities Regulators Government

Reporting
SEC (US)
CSA (Canada) PRMS BOEM
*UK AIM ANP
OPEC
*HKEX (Hong Kong)
ASX (Australia) UNFC
Financial
(*ESMA & FSA)
* Use PRMS or COGEH
IASB

Changes to PRMS impact existing “clients”

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Integrating with National Inventories

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 When will it happen?
COGEH/PRMS Convergence Approved in Principal

Final Convergence in Revised PRMS

Estimate ..2016+

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 Summary
We are all after the same answer!

Opportunity to leverage 1000’s of hours of work

into a single globally applicable system.

Focus on good industry practice guidelines.

Both systems need updates – incorporate in merger.

Provide linkages to:

 regulatory agencies
 resource inventory agencies
 new accounting guidelines

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