SPE London Section

Why Can’t I get my

Reserves right?

Mark Hayes: Head of

Reservoir Engineering RPS
Energy

27th March 2016

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 Agenda

• RPS Services

• Petroleum Resource Management System (PRMS)

• Reserves History
– Small fields ?
– Big fields ?

• Behavioural Challenges In Forecasting & Decision Making

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 RPS Group, FTSE 250 since 2002
~ $850m turnover, 5000 employees

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 A Few Facts
• Global presence, 1000 employees and over 1000 consultants
• Largest independent O&G technical consultancy in the world
• 20,000 projects since 2003, 150 countries, 250 clients
- Governments, National Oil Companies, Majors, Independents, Utilities, Investment Groups, Banks

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 Technical Studies

• Integrated Studies
- Exploration
- Basin Analysis
- Prospect Generation
- Complex Reservoir Modelling
- Field Development Planning
- CO2 Sequestration / Gas Storage
- Unconventional Oil & Gas, Heavy Oil
- EIA, EIS, Specialist Environmental Studies
- Process Safety
• Individual Disciplines
- Geology & Geophysics
- Biostratigraphy, Sequence Stratigraphy and
Sedimentology, Petrophysics, NMR
- Petroleum Engineering, EOR / IOR
- Production & Well Engineering

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 Advisory Services

• Transaction Support
- Asset Evaluation / Valuation / Economics
- Due Diligence / CPR / Reserves Reporting

• Strategic Support
- Inward Investment
- Gas Monetisation
- Capacity Building
- Refinery, Lubes & Retail Optimisation

• Audit
- Technical, Process
- Equity Determination

• Management
- Programme Management
- HSE Management Systems, ERP

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 Operations Support

• Seismic
- QC/QA and technical audits
- Survey design, parameter selection, ITT and contract review
- Processing support – office or field crew based
• Wellsite
- Wellsite & Operations Geology
- VSP
• Site Survey
- Geophysical & Geotechnical QC/QA
- Geohazards analysis
- Project Management and Technical Support
- Navigation & Positioning QC
- UXO & Logistics Support
• Health, Safety and Environmental
- Consenting and Permitting
- QC, Due Diligence, Technical Audit, Marine Mammal Observation
- Project Risk Assessment, Oil Spill Response
• Geodesy
- Positioning, Dimensional Control, GIS

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 Oil & Gas Training

• Largest supplier of professional training

- Range & Quality
- Close links with UK academia, PGD, MSc
• Industry-leading Alliance based training
- 25,000 man days year, 100 member companies
- Competency assessment / assurance
• Publically available training (US based)
- 7,000 man days year
- Direct purchase
• Courses
- Geoscience, Reservoir Engineering, Field courses
- Environmental
- Drilling
- Soft Skills & English language

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 PRMS Resource Classification
Framework

[SPE-PRMS 1.1]

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 PRMS Resource Classification
Framework

• Historical focus on
1P
– SEC
– Asset
Depreciation /
earnings

• 2P = 1P + planned
activity

• 3P = 2P + un planned
activity ?

• Jumble of activity
projects and
uncertainty

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 PRMS - Oil & Gas Life Cycle

Shift emphasis from…

Reporting Obligations

To ..

Resource Management

Decision Focused
Prospective Resources

Contingent Resources
Portfolio Management
Reserves
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 General Reserves History

• Publically Tracked at Portfolio / Company / Country level

• Many Companies have post investment review process for large

developments but not published

• Published literature suggesting “in-general” Reserves growth ?

– Dromgoole - Petroleum Geoscience 1997
– Watkins – MIT, Aberdeen 2002

• 2 datasets here…
– Public Domain – northsea (UK/Norway)
– Unpublished Mature field north sea and international infill drilling
& Small developments (1 – 5 wells)

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 Nomenclature

• 1P , 2P , 3P Reserves

• EUR = Estimate of Ultimate Recovery

• Reserves are remaining

• 2P = proved + probable reserves OR “P50”

“Most representative single estimate”

• 2P = EUR – Production

EUR ratio = 2P EUR current / 2P EUR sanction

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 • General shortfall on average
• Outturn and forecast very variable
• Some dry Holes not plotted

UN PUBLISH ED Pre & post drill mmboe gross

100
current post drill 2P EUR mboe gross

Best fit slope

y = 0.6525x
10

1
1 10 100
predicted pre drill
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 2P EUR ratio vs wells in program
2.5
• Portfolio effect as anticipated
• More wells in program less uncertainty
2
• Some outright “dry holes”

1.5

0.5

0
0 2 4 6 8 10 12
wells in program
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 Published Data UK Norway (larger dataset)

Published
• Big fields getting bigger 10000

1000

Current 2P
100

10

1
1 10 100 1000 10000
pre sanction EUR 2P

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 Published Data (large fields)

Both
• Big fields getting bigger 10000

• Unpublished data ties in 1000

• Bigger scatter for small

Current 2P
100
fields ?

10

1
1 10 100 1000 10000
pre sanction EUR 2P

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 EUR Ratio - Normalized

4.5
Big fields
4.0
small < 100
– Ratio 1.0 - 1.5 - 3.9
3.5
– But not likely to be the same
projects ?? 3.0 big > 100

Small Fields 2.5

– Ratio 0.3 – 0.8 - 1.9
2.0
– Probably the same projects ?
1.5
Typical study ranges
1.0
– 0.75 to 1.25 ?
0.5

0.0

100%
30%
0%

10%

20%

40%

50%

60%

70%

80%

90%
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 Life-of-Field Reserves Changes:
Observations

Big fields generally get bigger / small generally smaller .... WHY ?

Stage Big Field (> 100 mmboe)

APPRAISAL Appraised to commerciality threshold not full
potential (undrilled Fault Blocks / Horizons)
DEVELOP Sanction Optimization stops early as assets
meet economic thresholds easily
OPERATE Often Platform based - lower cost infill
opportunities
Rich data base allows good model calibration
Robust to well failures / multiple wells in a
reservoir
Longer field life – rising commodity price
backdrop / technology development – time to
learn & optimize ..

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 Valhall large field Example

Chalk reservoir

Low recovery factor,

crestal development

3 platforms

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 Valhall – N orway large field Example

Chalk reservoir

Low recovery factor ,

crestal development

3 platforms

Horizontal wells & water

injection

Permanent seismic array

NOW 8 platforms !

From 250 mmstb to > 1bn

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 Life-of-Field Reserves Changes:
Observations

Big fields generally get bigger / small generally smaller .... WHY ?

Stage Big Field (> 100 mmboe) Small Field (< 50 mmboe)
APPRAISAL Appraised to commerciality threshold not full Often under appraised
potential (undrilled Fault Blocks / Horizons) (economics won’t support)
DEVELOP Sanction Optimization stops early as assets meet Drive to meet economic targets lead to reserves
economic thresholds easily & value creep above true P50
OPERATE Often Platform based - lower cost infill Often Subsea – higher well intervention cost
opportunities Hard to recover
Rich data base allows good model calibration Reservoir Models never really mature to be
robust
Robust to well failures / multiple wells in a Small well count – fragile to well failures
reservoir
Longer field life – rising commodity price Short Field life – missed opportunities – only 1
backdrop / technology development – time to chance !
learn & optimize ..

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 Behavioural Challenges In Decision Making

• Chapter 7 of -----------
• System 1 / System 2
– Intuitive / reasoning ----------

• Availability (Vividness)
• Anchoring
• Overconfidence
• Group Bias

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 Example Are the blocks A & B different
OR the same colour ?

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24 24
 Example Are the blocks A & B different OR the
same colour ?

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25 25
 Conclusions

• Industry generally opaque on reporting Field EUR growth (deliberately ?)

• Highlights importance of PRMS discipline …. Reserves =Fn(Project)

• Small fields - evidence not meeting expectations ?

– BAse project + Behavioural bias ?

• Big fields - evidence of reserves growth

– Base + Incremental Projects + Behavioural bias ? + TIME = Optionality

• Getting Reserves / EUR right is hard

– NEEDS objectivity / capability / data / time ….

ALWAYS A GOOD BUSINESS CASE FOR GETTING Reserves &

Resources done well
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