SPE-196252-MS

Management of Reserves in Mature Oil and Gas Fields

Douglas Peacock and Andrew Duncan, Gaffney, Cline & Associates

Copyright 2019, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE/IATMI Asia Pacific Oil & Gas Conference and Exhibition held in Bali, Indonesia, 29-31 October 2019.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents
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Abstract
Many basins throughout the world are experiencing decline in hydrocarbon production with fields maturing
and approaching abandonment. Growth in production is coming either from unconventional reservoirs or
from relatively immature and emerging basins. As fields (or clusters of fields) approach abandonment,
several issues need consideration. There are several ways in which production decline can be mitigated
including: infield drilling, workovers, optimised reservoir & facility management, field rejuvenation. Cost
management, increased production and operational improvement are some of the strategies employed to
maintain profitable operations.
Abandonment of a platform with a large number of wells can be a lengthy process with production
continuing throughout that process. As production declines, revenues will eventually no longer cover
costs. Within the Petroleum Resources Management System (PRMS), Reserves are limited by "the earliest
truncation of either technical, license, or economic limit". If there are no technical or licence restrictions, the
economic limit, defined as the the time when the maximum cumulative net cash flow occurs for a project,
defines the date up to which Reserves may be booked.
Several issues related to the determination of the economic limit by an Economic Limit Test (ELT) in late
field life will be discussed. Short periods of negative cash flow may be accommodated, and therefore qualify
as Reserves, under certain circumstances provided that the longer term cumulative net cash flow forecast
shows that the following positive periods more than offset the negative. The use of maximum cumulative
cash flow as the basis for the ELT means that incremental projects with negative cash flow are not included
as Reserves. However, once the costs are sunk and a forward-looking assessment is performed, the cash
flow is once again positive and Reserves can be assigned. Volumes being produced beyond the economic
limit, accompanied by a negative cash flow, should not be classified as Reserves as they are not economic
to produce. The assumption within the PRMS is that this is point at which a project will cease production.
In some PSC environments, there may be little incentive for operators to make long term investments
close to PSC expiry. Even after fields reach their economic limit, they may be reactivated e.g.by infill
drilling, IOR, EOR. This may be done by different operators, including National Oil Companies or service
companies and/or under different commercial arrangements. However, in practice, there may be several
reasons why fields continue to produce when production is sub-economic. Management of Reserves in
mature fields is important for many reasons including: providing a financing base for the operator, signalling
2 SPE-196252-MS

investment opportunities for field re-activation, improved recovery methods or to justify licence extension.
This paper will outline some of the challenges involved in late life field management and how it impacts
Reserves assessment.

Introduction
Many basins throughout world are experiencing declines in hydrocarbon production with fields maturing
and approaching abandonment. Growth in production is coming either from unconventional reservoirs or
from relatively immature and emerging basins.
Analysis from Wood Mackenzie, in February 2018, says that "Offshore decommissioning in Asia Pacific
could cost US$100 billion" and that "decommissioning Asia Pacific's offshore assets – nearly 2,600
platforms and 35,000 wells – could cost over US$100 billion."
Decommissioning in Asia Pacific appears to be a mammoth task for which many of the stakeholders are
largely unprepared. Unclear government regulations coupled with a general lack of experience in the region
could mean a steep learning curve with high initial costs and potential for mistakes.
Asia upstream analyst Jean-Baptiste Berchoteau, Wood Mackenzie, said, "With over 380 fields expecting
to cease production in the next decade, the magnitude and cost of work can no longer be ignored. Through
learning from global decommissioning projects, the industry can adopt and adapt practices best suited for
Asia Pacific's own set of challenges."
Other mature basins such as the North Sea face large challenges. In 2016, an estimate by Douglas
Westwood concluded that "Nearly 150 oil platforms in the UK North Sea are expected to be scrapped over
the next 10 years"
In a region as diverse as Asia Pacific, with oilfield history extending back to the last century and
developments onshore- from coastal to the Papua New Guinea (PNG) highlands and offshore from nearshore
to deepwater cyclone-prone Western Australia- it is not surprising that there is a wide range of approaches
to mature fields management, decommissioning, and abandonment.
Throughout the Region, processes have been underway (in some cases for many years) to allocate, clarify,
and properly fund abandonment obligations. Some jurisdictions have carried out wide-ranging consultation
processes to gather stakeholder views. Others have strengthened regulations in successive licence contracts.
Such clarity is essential to allow governments and operators to estimate the net revenues from oil and gas
operations and the liabilities associated with decommissioning and abandonment.
Other regulatory developments have recognized the challenges of mature field economics and offered
improved fiscal or contract terms to incentivize IOR, EOR, asset rejuvenation, or field redevelopment.
A clear view on abandonment obligations (and fiscal treatment) facilitates ownership transfer of mature
fields from the current Operator to mature fields specialists. Across the region, International Oil Companies
(IOC's) are exiting in favour of smaller, local players. New companies are being formed to acquire and re-
work mature assets (from New Zealand to the Philippines). In some cases, ownership restructuring allows
new, more co-operative approaches to field development with satellite developments backfilling otherwise
redundant capacity.
Some countries in the Region (e.g. PNG) are successfully extending the productive life of their petroleum
basins and producing infrastructure by managing the transition from oil to gas production.
Managing mature fields and potentially extending field life is an enormous challenge for the oil and gas
industry.

Extending Field Life

Oil and gas fields can have long lives, much longer than initially envisioned. Fields may be relinquished
or proposed for abandonment where the current Operator's perspective does not allow the full potential of
the field to be exploited. There may be organizational barriers, regulatory or commercial issues, capital or
SPE-196252-MS 3

manpower allocation constraints, technology limitations, cost structures, or other factors which- if resolved-
can materially extend the productive life of a field or production area.
An excellent regional example is seen in Thailand, where the nation has been producing oil and gas at
a Proved Reserves/Production (R/P) ratio of 10 years (or less) for the past 14 years, and an R/P ratio of 4
years (or less) for the past 5 years (source: bp Statistical Review of World Energy)- with only small new
field developments coming on stream in that period. This means that every year Operators are finding or
maturing new volumes from existing fields to extend field life.
There are a numbers of broad categories which can be considered to extend field life while maintaining
safe and profitable operations. These include:

• Cost Management

• Incremental or alternative Production

• Operational Improvements

• Fiscal and Commercial improvements

Costs Management
The ELT is typically applied at the PSC or licence level to estimate when the overall production revenue
from a block is insufficient to support the operational costs of the block. In reality, of course, cost control
is much more granular than that. A detailed understanding of operating costs, and where and why they are
incurred in a production system allows uneconomic elements of the production system to be shut down (and
abandoned), improving the economics of the remaining system. This can take place at the well level (high
water cut wells), satellite production system level, and by combining/consolidating production streams into
a single processing facility. The overall objective is to reduce costs by ceasing uneconomic activities. This
approach may also require that decommissioning activities be carried out to remove redundant infrastructure
(e.g. wellhead platforms) where the continued existence of these facilities would incur costs to maintain a
minimum level of structural integrity and safety.
The unit costs of essential activities or services can be reduced by contract renegotiation. The oil price
fall of 2014-16 prompted a wide range of unilateral or negotiated rate reductions to major services, e.g. rig
rates, and to staffing costs resulting in a 26% fall in upstream capital costs and an 18% fall in upstream
operating costs (source: IHS UCCI and UOCI) over the period.
There are often alternative and lower cost ways to deliver the same production service. Advanced crew
boat transfer systems now allow safe ship to platform transfer replacing helicopter crew change on shorter
runs- improving safety and reducing costs. High cost expatriate manpower can be replaced by lower cost
expatriate or local staff. A large capacity, high day rate FSO can be replaced by a smaller unit as net oil
rates decrease. Reservoir pressure decrease may allow the use of lower specification equipment.
Cost reduction opportunities may also be found in re-thinking contract strategy, and moving activities
from in-house to contracting out (or vice-versa) to take advantage of lower cost structures for shared
services. Similarly, contracting strategies can be used to move costs from CAPEX to OPEX (or vice-versa)
through equipment leasing or sale and lease-back where this offers fiscal or cost advantages.

Incremental Production
A speciality mature fields Operator will often start with a detailed review of all available field subsurface
and operational data, to identify "quick wins" and generate early cash flow to finance further development.
A range of incremental production opportunities can be generated and ranked for implementation.
The simplest of these is likely to be surface facilities debottlenecking- open chokes, check line blockages,
reduce pressure drops, and improve system performance to realize the minimum Flowing Tubing Head
4 SPE-196252-MS

Pressure (FTHP). In gas operations, this might also include minimizing the delivery pressure to the customer,
or taking advantage of swings in the customer's operating pressure to deliver intermittently.
Downhole, a review of existing wells can identify behind-pipe opportunities- unperforated zones, Low
Resistivity/Low Contrast (LRLC) pay, review water saturation cut-offs, etc. In some cases, zones previously
shut in on high water cut may be worth re-opening. Reservoir review may identify zones near existing
penetrations that can be accessed by side-track or coiled tubing (CT) side-track- or tight zones that can be
produced by new short-radius CT horizontal side-tracks.
New infill wells, taking advantage of new horizontal, geo-steering, and fraccing technology, can develop
bypassed pay, attic or field flank zones, or tight zones previously considered unproducable. Offshore, a
program of slot recovery (P&A old wells to re-use the existing well slot), duals (two wells to an existing
conductor), or clamp-on conductors can create additional infill drilling opportunities in fully developed
wellhead platforms.
The search for bypassed pay can also extend into near-field or near-block exploration- testing
unpenetrated fault blocks or structures within tieback distance of the development. These incremental
volumes can extend the economic life of the development allowing a previously sub-economic "tail" of the
legacy field to be economically produced. Further exploration opportunities can be sought below the field
(deep potential) or even above the field- shallow gas previously avoided as a drilling hazard.
The economic life of a mature oilfield can sometimes be extended with a gas cap blowdown phase,
sometimes with LPG or condensate recovery. Some gas reservoirs, with suitable location, infrastructure,
and reservoir properties, can be re-purposed for gas storage duty. In the longer term, a well-documented but
depleted reservoir may have value for CO2 (or other waste products) storage.

Operational Improvements
Field economic performance can be improved and extended by attention to operations. Additional gas sales
can be achieved through constrained facilities by attention to planned and unplanned downtime. Attention
to metering accuracy (and sometimes to system reallocation algorithms) can offer marginal improvements
in metered (and sold) volumes at minimal or no cost.
Mature oilfields are often constrained on gross liquids handling capacity, while legacy facilities designed
for net oil handling (e.g. export storage tanks) remain idle. A re-think of the process flow can unlock
additional capacity at low cost.

Fiscal and Commercial Improvements

It can be in the best interests of offtakers (e.g. gas buyers) and host governments to delay field shutdown
and abandonment by renegotiating commercial or fiscal terms.
Gas prices, netted back to the producer, can be improved by addressing gas price, indexing terms, delivery
specifications, embedded transport costs, and/or capacity charges or swing factors. There may be value in
a gas stream from its potential to "mix away" other below specification gas. Attention to the calibration of
fiscal and calorific value meters can offer small, but worthwhile improvements.
Oil prices are generally linked to a regional reference crude and therefore to Brent, however the producer
can improve net price by addressing the transport and quality offsets that are applied to the benchmark price.
Experience shows that attention to oil marketing, meeting with a range of buyers and traders can help a
producer to materially improve net prices.
Government take, over and above the rates of general corporate taxation, may also be negotiable-
where the alternative is field abandonment. The recent round of Indonesian PSC renewals under the Gross
Split terms has created an opportunity to discuss (and hopefully improve) terms for mature PSC's. Other
jurisdictions have also applied various "mature field rejuvenation" contract forms. A field abandonment
proposal could (and arguably "should") initiate a fiscal & regulatory dialogue as well as the usual technical
and environmental discussions.
SPE-196252-MS 5

Reserves Definitions
The Petroleum Resources Management System (PRMS) is an international standard petroleum Reserves
and Resources classification system which is based on industry best practices. The most recent version of
the PRMS was released in 2018. Although the PRMS is referenced within this paper, the basic principles
described herein may potentially apply to other major reserves classification systems such as SEC and
COGEH. Many stock exchanges and regulatory bodies outside the US, (where SEC standards are used)
require Reserves and Resources reporting to be in accordance with the PRMS. PRMS is also referenced
by other bodies such International Accounting practices, including the IFRS. The PRMS recognises three
classes of petroleum resources based on project maturity: Prospective Resources, Contingent Resources and
Reserves. Figure 1 is a graphical representation of the PRMS classification system.

Figure 1—PRMS Resources Classification Framework

Uncertainty (X-axis) and Risk (Y-axis) are fundamentally different concepts under the PRMS. The X-
axis reflects a range of estimated quantities potentially recoverable from an accumulation by the application
of a defined development project. The Y-axis of Figure 1 represents the "chance of commerciality", that is,
the chance that the project will be developed and reach commercial producing status. PRMS defines each
resources class as follows:
Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations by application of future development projects.
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations, by the application of development project(s) not currently
considered to be commercial owing to one or more contingencies.
6 SPE-196252-MS

Reserves are those quantities of petroleum anticipated to be commercially recoverable by application

of development projects to known accumulations from a given date forward under defined conditions.
Reserves must satisfy four criteria: discovered, recoverable, commercial, and remaining (as of the
evaluation's effective date) based on the development project(s) applied.
PRMS is a project-based system. Reserves and Resources evaluations are performed, and reported, at the
level of a project. The PRMS states in paragraph 1.2.0.4:

A project may constitute the development of a well, a single reservoir, or a small field; an incremental
development in a producing field; or the integrated development of a field or several fields together
with the associated processing facilities (e.g., compression). Within a project, a specific reservoir's
development generates a unique production and cash-flow schedule at each level of certainty. The
integration of these schedules taken to the project's earliest truncation caused by technical, economic,
or the contractual limit defines the estimated recoverable resources and associated future net cash flow
projections for each project. The ratio of EUR to total PIIP quantities defines the project's recovery
efficiency. Each project should have an associated recoverable resources range (low, best, and high
estimate).

The concept of a project and the definition of a project in any specific situation is fundamental to this
discussion. The economic assessment and economic limits may be quite different for an individual field as
opposed to a cluster of fields producing to a hub.
An example of project production profiles for an oil field is shown in Figure 2.

Figure 2—Production Forecasts for Different Projects

In the example above, an initial development may be implemented while later projects are planned but
not yet committed. As each subsequent project is committed for development, it is included with the existing
Reserves. The PRMS states: "Once a project passes the commercial assessment and achieves Reserves
status, it is then included with all other Reserves projects of the same category in the same field for estimating
combined future production and applying the economic limit test."
This paper is concerned primarily with the assessment and management of Reserves in mature fields as
they approach the end of their producing life and in particular where Reserves are truncated by an economic
limit, although technical or contractual limits may also limit reserves.
SPE-196252-MS 7

Net Cash-Flow Evaluation and the Economic Limit Test

The economic limit is defined within the PRMS as the time when the maximum cumulative net cash flow
occurs for a project. The entity's entitlement production share, and thus net entitlement resources, includes
those produced quantities up to the earliest truncation occurrence of either technical, license, or economic
limit.
The economic limit is an undiscounted operating net cash flow calculation whose inputs are production
and cost profiles together with the relevant fiscal terms. Outputs from the assessment are cash flows from
which the economic limit can be calculated.
The PRMS states:

"In this evaluation, operating costs should include only those costs that are incremental to the
project for which the economic limit is being calculated (i.e., only those cash costs that will actually
be eliminated if project production ceases). Operating costs should include fixed property-specific
overhead charges if these are actual incremental costs attributable to the project and any production
and property taxes, but for purposes of calculating the economic limit, should exclude depreciation,
ADR costs, and income tax as well as any overhead that is not required to operate the subject property.
Operating costs may be reduced, and thus project life extended, by various cost-reduction and revenue-
enhancement approaches, such as sharing of production facilities, pooling maintenance contracts, or
marketing of associated non hydrocarbons".

Note that ELT is performed on all categories of Reserves i.e. 1P, 2P and 3P separately.

Figure 3—Undeveloped Project Economic Forecast

The economic limit is defined as "the production rate at the time the maximum cumulative net cash flow
occurs for a project." Note that this is different from the last point at which the cash flow is positive and
8 SPE-196252-MS

never becomes positive again, as illustrated in Figure 4 which shows an assessment as carried out in Year
0. The activity planned in Year 15 to prolong the life of the field actually decreases value, so the maximum
cumulative net cash flow is achieved in Year 15 and this is the economic limit. Although the Year 15 activity
does revitalise the field and restore positive economic cash flow, it does not offset the Capex required.

Figure 4—Economic Limit and Maximum Cumulative Net Cash Flow

Reserves assessments are always performed at a given data, and are forward-looking. Consider therefore
the situation where an assessment is performed in Year 16, i.e. after the Year 15 Capex has been spent. Now
there is a period of positive cash flow and Reserves can be claimed for years 16 to 19.
The PRMS also allows for an interim period of negative cash flow to be accommodated. This allows
for periods of development capital spending, low product prices or major operational problems- provided
that the longer term cumulative cash become positive and that the negative cash flow is more than offset
by the positive. The assessment of a short period depends on the nature of reasons for the reasons for the
negative cash flow.
Figure 5 below shows field extension from two activities. The field is declining and the No Further
Activity (NFA) case shows the field reaching its economic limit in Year 5. However, the Operator commits
additional Capex in Year 5 (A) to increase production, perhaps through infill drilling, resulting in an
extension of the economic field life until Year 10. In Year 10, an Opex reduction programme (B) improves
cashflow (but not production) and results in another extension of economic limit until Year 15. The field
finally reaches its economic limit in Year 15 (C), but production continues beyond that with negative
cashflow until the field is abandoned in Year 21. The production associated with this period cannot be
classified as Reserves, even though there may be good reasons to continue production as noted earlier.
SPE-196252-MS 9

Note that the short periods of negative cashflow in Year 5 and Year 10 can be accommodated because they
are associated with activities that are increasing cash flow and the positive cash flow offsets the negative
i.e. the cumulative net cash flow increases.

Figure 5—Extension of Field Life

Treatment of Abandonment Process

Abandonment of a platform with a large number of wells can be a lengthy process. For example, if there
are 30 wells and it takes 2 weeks to plug and abandon each well, then this part of the abandonment process
would take 15 months. Operating costs may not be substantially reduced until all wells have been plugged
and abandoned, even if production has ceased, as the platform cannot be declared hydrocarbon-free and
many of the services required during production therefore need to be maintained until the last well has been
plugged and abandoned.
If the process of plugging and abandoning wells is not started until the economic limit is reached, there
may be a lengthy period of time following that date during which high operating costs continue to be incurred
yet either there is no production, or production is at a sub-economic rate. If production can continue while
wells are being abandoned, the economically optimum approach may be to start abandoning the wells before
the economic limit is reached. The wells with the lowest production rates can be abandoned first, and those
with the highest rates last, to have the minimum impact on production.
Although this may be the economically optimal approach, it will lead to reduced production in the weeks
or months before the original economic limit, and this will also cause the economic limit to occur at a slightly
earlier date. Thus, Reserves volumes will apparently be reduced. However, production will not actually
cease at the point where it becomes uneconomic; it may continue for several weeks or months, albeit from
a gradually decreasing number of wells.
10 SPE-196252-MS

Normally, uneconomic production cannot be counted as Reserves, because Reserves are volumes that
can be produced economically. However, Section 3.1.3.2 of the SPE-PRMS states that for the economic
limit test:

…, operating costs should include only those costs that are incremental to the project for which the
economic limit is being calculated (i.e., only those cash costs that will actually be eliminated if project
production ceases).

As noted above, operating costs may not be significantly reduced until all wells have been plugged and
abandoned. The costs that will actually be eliminated if production ceases may be relatively small, and
easily covered by the revenues generated by continuing to produce those wells that remain. If this is the
case, then we believe it is legitimate to include the continued production in Reserves, up to the date at which
revenues from production no longer cover the incremental cost of that production. Support for this view
can also be provided by noting that the remainder of the operating costs (i.e., the non-incremental part) can
be regarded as part of the abandonment costs, since they will be incurred during the abandonment process
whether or not there is any on-going production. The SPE-PRMS explicitly excludes abandonment (ADR)
costs from the economic limit test (again in Section 3.1.3.2):

Operating costs should include … but, for purposes of calculating the economic limit, should exclude
depreciation, ADR costs and income tax …

In taking this approach, however, it is important to make a quantitative estimate of the incremental
operating costs to substantiate that they are indeed covered by production revenues, and not simply to
assume that the incremental costs would be negligible.
Care must be taken, however, not to use the approach described above to justify production beyond the
economic limit simply in order to defer abandonment costs (or in the hope of an increase in oil prices or of
some further development that does not yet qualify as Reserves). To avoid this, we consider that:

• The process of shutting in wells must be assumed to start no later than the economic limit;

• The abandonment process must be assumed to occur as fast as reasonably possible, with no undue
delays; and
• The timing of the process must be defensible from an economic point of view, in the sense that
choosing an earlier date to begin the process would not significantly increase the overall cash flow
(on an undiscounted basis).
It should also be noted that taking this approach is only justified if the economic limit is imminent.
Additional Reserves volumes that may be counted using it are likely to be negligible if several years of
economic production remain.

Regional Example
Using Public Domain data, with some adjustments for illustration purposes, the approaches to extending
field life (outlined above) have been sequentially applied to an existing South East Asian asset. The impact
on End of Field Life (EoFL), Reserves (applying ELT, without abandonment costs) and NPV (including
abandonment costs) are tabulated below. In all cases, NPV's and Volumes are calculated from the same
base year. Fiscal terms and product prices have been drawn from public domain or estimated. All costs and
revenue calculations are on an unescalated basis.
SPE-196252-MS 11

Base Case
The example is based on an extensive offshore production system, operated by an IOC and producing
gas, condensate, and oil to multiple markets. The IOC cost structure is assumed to continue through to
EoFL which is taken at the point where gross costs exceed gross revenue. Abandonment expenditure begins
in year 11, as some of the wells and fields in the block reach their economic limit, however the bulk of
the abandonment costs are deferred to year 14- the year following the economic limit. Were operations to
continue (after year 13), this would be loss-making- although the Operator may choose to do this in order
to defer the abandonment liability or in anticipation of some later positive development.

Base Case Reserves Volumes Net Present Values (US$MM)

EoFL (remaining years) Liquids (MMbbl) Gas (Bcf) NPV(0) NPV(10)

+ 13 years 55.5 891.4 $1765 $1459

Figure 6—Base Case Cash Flows

Cost Improvements
The IOC exits the block, and Operatorship taken over by an independent company with lower cost structure.
The original operator's forward development plan is maintained. The original licence terms are assumed to
extend to the new EoFL date. The new Operator materially reduces OPEX from year 2 onwards, extending
the economic limit by three years (to year 16).
12 SPE-196252-MS

Cost Improvements Reserves Volumes Net Present Values (US$MM)

EoFL (remaining years) Liquids (MMbbl) Gas (Bcf) NPV(0) NPV(10)

+ 16 years 58.4 986.8 $1884 $1438

Figure 7—Cost Structure Improvements

Incremental Development and Production

The new Operator approves a new field development in the system, which did not meet investment
hurdles under the previous operator. Various incremental production opportunities cumulatively deliver 10%
additional production going forward. The original licence terms are assumed to extend to the new EoFL
date. The new field development is implemented in year 17 and further defers the economic limit to year
27, adding to reserves. As the production profile now extends an additional 11 years, some of the older
fields in the system reach their economic limit and are abandoned (in years 21 to 24), reducing the final
year abandonment cost.

Incr. Dev. & Prod'n Reserves Volumes Net Present Values (US$MM)

EoFL (remaining years) Liquids (MMbbl) Gas (Bcf) NPV(0) NPV(10)

+ 27 years 68.4 1486.1 $4069 $2060

SPE-196252-MS 13

Figure 8—Incremental Development and Production

Operational Improvements
The incremental development and production plan outlined above is optimized. Some investment is required
to decommission a major production facility in year 7 (accelerating some abandonment costs), but reducing
operating costs. This system optimization work extends the economic limit by one year. Assumed the
original licence terms are extended to the new EoFL date.

Operational Impr. Reserves Volumes Net Present Values (US$MM)

EoFL (remaining years) Liquids (MMbbl) Gas (Bcf) NPV(0) NPV(10)

+ 28 years 68.6 1508.6 $4082 $2059

14 SPE-196252-MS

Figure 9—Operational Improvments

Fiscal and Commercial Improvements

This case assumes that the new Operator successfully negotiates a 10% improvement in product price and
improved fiscal terms at the end of the original licence period in year 8. The development and operational
programme outlined in the previous section is maintained. This scenario is introduced to illustrate the
material impact that fiscal and commercial terms can have on cash flow and NPV, where these are supported
and justified by an ongoing technical program.

Fiscal & Comm. Impr. Reserves Volumes Net Present Values (US$MM)

EoFL (remaining years) Liquids (MMbbl) Gas (Bcf) NPV(0) NPV(10)

+ 29 years 68.8 1527.8 $4399 $2134

SPE-196252-MS 15

Figure 10—Fiscal and Commercial Improvments

Conclusions/Summary
In closing, imagine the conditions under which the "last economic barrel" would be produced from a field
- for maximum benefit to both the host government and to the licence holder. That barrel (or gas boe)
would be produced when the marginal cost of production equals sales revenue, with no excess government
take (beyond normal corporate tax), and all production services are provided by 100% local businesses.
At cessation of production, a properly funded ADR provision is available to cover decommissioning and
restoration.
Managing mature oil and gas fields is both a challenge and an opportunity. The challenge is how to
manage transition to that last economic barrel, while maintaining equitable returns to business and society
throughout the field production lifecycle.
There are a range of approaches and technologies available to extend economic operations, and a
new group of operators and commercial structures emerging to implement these. The challenge to host
governments and to the existing Operators is to carefully manage the fiscal, regulatory, and commercial
frameword of field management to allow these activities to take place, while assuring responsible field
decommissioning.
The PRMS provides the management framework for mature fields resource management and will, if
properly applied, provide timely signals to management and investors of these opportunities.

Acknowledgements
The authors would like to thank Dr. John Barker for useful suggestions and review of this paper as well as
technical contribution, in particular to the treateatment of the abandonment process.