2010 SPEE Survey

SOCIETY OF PETROLEUM EVALUATION ENGINEERS
TWENTY-NINTH ANNUAL
SURVEY OF PARAMETERS USED IN PROPERTY EVALUATION
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JUNE 2010
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PRESENTED AT THE
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ANNUAL MEETING
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OF THE
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VICTORIA, BRITISH COLUMBIA
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JUNE 5 - 8, 2010
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5535 MEMORIAL DRIVE, SUITE F654

HOUSTON, TEXAS 77007
(713) 651-1639
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EVALUATION PARAMETERS SURVEY COMMITTEE
June 1, 2010
Re: Twenty-Ninth Annual

Survey of Parameters Used in Property Evaluation
In April 2010, the Society of Petroleum Evaluation Engineers (SPEE) distributed the questionnaire for its
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Twenty-Ninth Annual Survey of Parameters Used in Property Evaluation (Survey) to all SPEE members and
certain invited guests. This report represents an analysis and summary of the 143 responses received.
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The Survey questions asked, the analysis performed, and the presentation format changes slightly from year
to year in an effort to improve the clarity and value of the Survey report. A copy of the questionnaire is
included in Appendix II to allow readers to see the questions that prompted the responses reported.
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The Survey Committee recommends reading the entire report text before using the summary data contained
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herein for any specific purpose. Neither the SPEE nor its members endorse nor necessarily agree with the
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composite opinions presented herein. It is not the intent of the Survey to dictate fair market value parameters,
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as the development of a fair market value for any property is a subjective process based on many factors.
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The Survey Committee would like to thank all of the Survey respondents whose contributions of time and
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shared evaluation experience make the Survey a valuable industry resource. We also thank each respondent
who contributed written suggestions, criticisms and compliments. It is this input that drives modifications to
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the Survey questionnaire which in turn keeps the report content fresh and responsive to a dynamic industry.
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Evaluation Parameters Survey Committee

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Sam Attaya
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Cary McGregor
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Richard F. (Rick) Krenek II

Chair, Evaluation Parameters Survey Committee
29th Annual
Survey of Parameters Used in Property Evaluation June 1, 2010
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TWENTY-NINTH ANNUAL
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SURVEY OF PARAMETERS USED IN PROPERTY EVALUATION ©
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Copyright 2010: Society of Petroleum Evaluation Engineers, all rights reserved.
The Society of Petroleum Evaluation Engineers maintains exclusive rights to all prior versions and compilations of its
Survey of Economic Parameters Used in Property Evaluation, whether or not specifically noted.
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TABLE OF CONTENTS
Statement of Purpose 1
Breakdown of Survey Responses 3
Price and Cost Projections 5

Introduction 5
Oil Price Projections and Escalations 5
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Gas Price Projections and Escalations 6
Comparison of Historical SPEE Survey Price Projections 8
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Basis for Price Projections 9
Projection of Operating Costs, Drilling Costs, and Inflation 9
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Reserves and Resources Estimation y 13
Probabilistic Reserves Evaluations 13
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The Petroleum Resources Management System (PRMS) 15
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Revised Disclosure Requirements of the U.S. Securities and Exchange Commission (SEC) 17
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Valuation Methodologies and Criteria 23

Introduction 23
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Recent Transaction Information 23

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Valuation Pricing Criteria 24

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Preferred Method for Determining Values 25

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Discount Rates 26
Incorporating Risk into Discounted Cash Flow (DCF) Analysis 29
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Risk Adjusted Discount Rate (RADR) 30

Reserve Adjustment Factors (RAFs) 34
How Reserve Adjustment Factors Are Applied 37
Value Adjustments for Unquantified Reserve Potential 38
Financing and Borrowing Rate Information 39
Transaction Values Measured By Oil or Gas Volume Equivalence 41
Closing 41
Appendices
Appendix I: Ranges of Uncertainty Surrounding Crude Oil and Natural Gas Price Projections 43
Appendix II: 2010 Survey Questionnaire 45
29th Annual
List of Figures
Figure 1: Affiliation of Survey Respondents 3
Figure 2: Oil Price Projections by Affiliation 5
Figure 3: Natural Gas Price Projections by Affiliation 7
Figure 4: Historical Oil Prices and Historical SPEE Survey Price Projections 8
Figure 5: Historical Natural Gas Prices and Historical SPEE Survey Price Projections 9
Figure 6: Average Operating Cost, Drilling Cost, and Inflation Projections 11
Figure 7: Average Operating Cost, Drilling Cost, and Inflation Projections on a Cumulative Basis 11
Figure 8: Frequency of Use of the Probabilistic Approach 14
Figure 9: Frequency of Probabilistic Method Use in Various Stages of Production 14
Figure 10: Degree of Similarity Between Newly Revised SEC and PRMS Definitions 20
Figure 11: Instances With Probable and Possible Reserves Public Disclosure Under Newly Revised SEC Rules 21
Figure 12: Total Property Values for Which Respondent Calculated Value During Past 12 Months 24
Figure 13: Most Commonly Used Method for Determining Value of Oil and Gas Properties 25
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Figure 14: Primary and Secondary Evaluation Methods Utilized 25
Figure 15: Discount Rate Applied to Cash Flows, Composite 27
Figure 16: Discount Rate Applied to Cash Flows, Producers 27
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Figure 17: Discount Rate Applied to Cash Flows, Consultants 28
Figure 18: Discount Rate Applied to Cash Flows, Banking/Energy Finance 28
Figure 19: Basis of Respondents' Discount Rate 29
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Figure 20: How Respondents Adjust Cash Flow Models to Account for Risk and Uncertainty 30
Figure 21: RADR for Respondents Who Use RADRs Exclusively OR In Conjunction with RAFs for Risking 31
Figure 22: RADR for Respondents Who Use ONLY RADRs for Risking
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Figure 23: RADR for Respondents Who Use BOTH RADRs and RAFs for Risking 33
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Figure 24: How Reserve Adjustment Factors are Applied 38
Figure 25: Frequency of Value Adjustment for Unquantified Reserve Potential 39
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Figure 26: Borrowing Rate – Cost of Debt 40

Figure 27: Sources of Debt Financing for Acquisitions 40
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List of Tables
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Table 1: Respondents' Company Size 3

Table 2: Average Oil Price Projections by Affiliation (US$) 6
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Table 3: Average Natural Gas Price Projections by Affiliation (US$) 7

Table 4: Inflation CPI Projection (%) 10
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Table 5: Drilling Cost Inflation Projection (%) 10

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Table 6: Operating Cost Inflation Projection (%) 10

Table 7: Comparing Results of Probabilistic and Deterministic Methods 15
Table 8: PRMS Awareness Level and Degree of Adoption 16
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Table 9: Time Frame for PRMS Changes 17

Table 10: Impact of SEC Rule Changes 18
Table 11: Primary Reason(s) for Performing Sensitivities 20
Table 12: Primary Reason(s) for Not Disclosing Probable and Possible Reserves 21
Table 13: RADR for Respondents Who Use RADRs Exclusively or In Conjunction with RAFs (%) 31
Table 14: RADR for Respondents Who Use RADRs Exclusively (%) 32
Table 15: RADR for Respondents Who Use Both RADRs and RAFs (%) 32
Table 16: Factors Affecting Risk Adjusted Discount Rate (RADR) 33
Table 17: Composite RAFs for Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%) 35
Table 18: RAFs Used for Acquisitions – Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%) 35
Table 19: RAFs Used for Loans – Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%) 35
Table 20: Composite RAFs for Respondents Who Use Only RAFs (%) 36
Table 21: RAFs Used for Acquisitions – Respondents Who Use Only RAFs (%) 36
Table 22: RAFs Used for Loans – Respondents Who Use Only RAFs (%) 36
Table 23: Composite RAFs for Respondents Who Use RAFs and RADRs (%) 37
Table 24: RAFs Used for Acquisitions – Respondents Who Use RAFs and RADRs (%) 37
Table 25: Average US$/BOE and US$/MCFE Value Based on Reserve Category 41
29th Annual
STATEMENT OF PURPOSE
This Survey is conducted annually by the Society of Petroleum Evaluation Engineers (SPEE) to obtain
opinions from the evaluation community regarding a number of economic parameters used primarily in the
U.S. and Canada to evaluate oil and gas properties. The stated purpose of this Survey is to capture and
analyze (1) opinions regarding a set of volatile economic parameters including projections of future oil and
gas prices, drilling and operating costs, and inflation, and (2) opinions on the factors and methods used in
valuing oil and gas properties.
When used with an appreciation for the purpose of the Survey and the source of the statistical results, along
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with an understanding of the inherent complexity of subject matter, this information can be useful in
understanding and using evaluations of oil and gas properties. The Survey results can be particularly useful
in comparing the relative thinking of different groups, such as producers, consultants, and those in banking or
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financial sectors. The Survey results can also be useful in tracking how opinions have changed over time.
Care should be taken in using the information in this report. The Survey covers only a few of the many
considerations of importance in the evaluation and valuation of oil and gas properties. The Survey responses
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compiled herein represent opinions expressed by the individual participants in response to specific questions
asked. Many of the questions asked are hypothetical and may not be as precisely stated or contain as much
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detailed background information as situations encountered in an actual valuation scenario; as such, the
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responses provided likely reflect certain biases based on each participant's own experience, and the resulting
analysis of responses cannot fully reveal the reasons for the resulting differences of opinion that may exist
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among the respondents. Not every respondent answered every question. Additionally, the responses are
subject to change over time and may not be relevant to any period other than April 2010. Finally, some
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questions had so few responses as to have questionable statistical significance – we have attempted to
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indicate the number of responses to each question so that judgment can be made by the reader regarding
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statistical significance.
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The SPEE does not endorse the use of the Survey results, either in whole or in part, as a valuation guideline.
Determination of fair market value is an inherently complex process and involves consideration of many
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factors beyond the scope of this Survey. Neither the Survey nor its contents are intended to dictate fair
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market value parameters. Nevertheless, the popularity of the Survey shows that the Survey is relevant when
used within the scope of its intended purpose.
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The SPEE and the SPEE Evaluation Parameters Survey Committee make a substantial effort to develop
meaningful and relevant Survey questions, then compile and thoughtfully analyze the Survey responses.
Neither the SPEE nor the SPEE Evaluation Parameters Survey Committee warrants in any way, any part of
the Survey or the Survey results.
29th Annual
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BREAKDOWN OF SURVEY RESPONSES
The 2010 Survey was opened to participants on April 8, 2010, with a deadline of April 30, 2010. A total of 143
responses were received by the April 30 close. SPEE members contributed 96% of these responses.
The 2010 Survey was the first in the 29-year history in which transmittal of both the Survey notice and the
Survey questions were accomplished totally electronically. While this change is in keeping with SPEE's trend
toward paperless transmission of most SPEE business correspondence, it is likely a key reason for the slight
reduction in responses from the 161 received last year.
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Consultants and producers comprised 43% and 40% of the total responses, respectively, slightly changed
from the 38% consultants and 44% producers reported last year. Banking and energy finance respondents
totaled 13%, up slightly from 11% last year. The remaining 5% of the Survey respondents placed themselves
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in the "Other" category. The majority of these were from governmental entities although the group also
includes 1 private equity respondent. Figure 1 shows the breakdown of the respondents by affiliation.
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Respondents were requested to rank the size of their companies by number of employees. The responses to
this question are shown in Table 1. y
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Figure 1 Table 1
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Affiliation of Survey Respondents

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Other
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Banking/
Energy Finance 5% Respondents' Company Size
13%
(143 Respondents)
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0-5 Employees 36%

6-30 Employees 29%
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31-100 Employees 14%

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Over 100 Employees 21%

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Producer
Consultant
40%
43%
Totals may not add because of rounding.

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Last year's respondent breakdown included 39%, 30%, 11%, and 20% in each of the four company size
categories shown above, respectively. Compared to last year, response percentages have shifted slightly
away from those respondents affiliated with the smallest companies toward those associated with the largest
companies.
The Survey does not track age nor level of experience, although the respondent pool can generally be
considered to be quite experienced in the oil and gas industry. This is directly evidenced by the large number
of respondents that are SPEE members, which by its by-laws, maintains certain minimum education and
experience requirements for membership.
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PRICE AND COST PROJECTIONS
Introduction
Each year, the SPEE Survey poses a large number of questions in order to compile and summarize the
respondents' views with regard to future pricing of oil and gas as well as expected escalations in costs of
development and operation of oil and gas properties. Due to the inherent volatility of oil and gas prices, this
section represents the most dynamic of all Survey topics.
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Oil Price Projections and Escalations
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In the 2010 Survey, respondents were asked to provide their current oil price projections. Of the 143 total
Survey responses received, 135 contained projections of future oil prices. All of those who submitted oil price
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forecasts based their projections on a West Texas Intermediate (WTI) crude; 107 of these (79%) indicated
that their WTI oil price projections were NYMEX based, while 14 of these (10%) indicated that their WTI oil
price forecasts were based on posted prices. The remaining 14 respondents (10%) did not specify what
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benchmark their oil price forecasts were based on beyond indicating that the prices are WTI based. Figure 2
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presents the average oil price projections for the 2010 Survey.
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Figure 2
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Oil Price Projections by Affiliation

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$110.00
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$100.00
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$90.00
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$80.00
US$/BBL
$70.00
$60.00 Composite
Producer
Consultant
$50.00 Banking/Energy Finance
Other
$40.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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The yearly composite of respondents' oil price forecast data used to prepare the preceding chart is provided
in Table 2.
Table 2
Average Oil Price Projections by Affiliation (US$)
Banking/
Energy
Composite Producer Consultant Finance Other
Year (135) (53) (57) (18) (7)
2010 77.87 79.72 80.58 63.78 78.08
2011 80.36 81.74 83.82 64.55 82.37
2012 82.57 84.19 86.20 66.91 80.97
2013 84.36 86.04 88.19 68.61 81.17
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2014 86.44 88.00 91.16 69.08 81.67
2015 86.69 88.47 90.82 69.52 85.06
2016 88.62 90.54 92.89 69.72 90.18
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2017 90.67 93.70 94.60 69.98 94.10
2018 92.24 95.04 96.86 70.19 95.70
2019 94.39 98.24 98.88 70.40 98.03
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2020 96.46 100.20 101.56 70.67 100.38
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Historically, differences inherently exist between WTI posted prices and prices for WTI contracts traded on the
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NYMEX. Currently, posted spot prices for WTI Light Sweet Crude delivered at various points close to
Cushing, Oklahoma (the NYMEX-specified delivery point for physical deliveries), are approximately US$3.75
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per barrel below prices for the same type of crude traded on the NYMEX. This year, the Survey Committee
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considered reporting the oil price forecast on a more consistent NYMEX basis, which would require adjusting
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the few forecasts that were provided in terms of WTI posted prices to NYMEX-equivalent price forecasts. The
goal would be to reduce the spread of forecast prices that was due solely to the crude basis used for each
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forecast. In practice, we found that the price forecasts identified as based on WTI postings were not lower in-
aggregate than those identified as based on NYMEX WTI pricing, and it did not appear that making such an
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adjustment would reduce the spread of price forecasts. As such, this method of normalizing the data was not
performed, and all forecast data were tabulated as provided without regard to specified benchmark type.
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Gas Price Projections and Escalations

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Of the 143 total Survey responses received, 133 provided forecasts of future natural gas prices. Of those
who submitted gas price forecasts, 101 respondents (76%) based their projections on either a NYMEX Henry
Hub price or a Henry Hub spot price, with the vast majority preferring to tie to a NYMEX price. Since there
has historically been little difference between NYMEX Henry Hub prices and posted Henry Hub prices, these
101 respondents are, for practical purposes, reporting using the same benchmark. An additional 10
respondents (8%) specified their prices as being based on Gulf Coast Spot prices, a benchmark that is likely
not significantly different from the more specific Henry Hub benchmarks. Nine of the respondents (7%)
indicated use of a benchmark outside of the U.S. Gulf Coast region for reporting their natural gas forecasts,
including 5 in the Permian, 3 in the Rockies, and 1 in the Mid-continent region. The remaining 13
respondents (10%) did not specify what benchmark their gas price forecasts were based on. The average
natural gas price projections for the 2010 Survey are presented in Figure 3 and Table 3.
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Figure 3
Natural Gas Price Projections by Affiliation
$7.50
$7.00
$6.50
US$/MMBTU
$6.00
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$5.50
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Composite
$5.00 Producer
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Consultant
Banking/Energy Finance
$4.50 y Other
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$4.00
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Table 3
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Average Natural Gas Price Projections by Affiliation (US$)

Banking/
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Energy
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Composite Producer Consultant Finance Other

Year (133) (52) (56) (18) (7)
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2010 4.55 4.51 4.67 4.24 4.59

2011 4.98 4.93 5.09 4.83 4.97
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2012 5.38 5.40 5.41 5.28 5.29

2013 5.67 5.68 5.72 5.56 5.48
2014 5.90 5.91 5.99 5.69 5.66
2015 6.11 6.06 6.24 5.78 6.21
2016 6.28 6.19 6.46 5.83 6.56
2017 6.52 6.51 6.72 5.85 6.61
2018 6.67 6.59 6.96 5.88 6.80
2019 6.83 6.77 7.15 5.90 7.00
2020 6.99 6.98 7.31 5.92 7.19
As indicated previously, there is little practical historical difference between posted and NYMEX Henry Hub
gas prices. There is also generally little difference between a more generic Gulf Coast spot prices and the
more specific Henry Hub benchmarks. Historical differences do exist between Henry Hub/Gulf Coast gas
prices and gas prices posted at other geographical locations around the U.S., including the Mid-continent, the
Permian Basin, and the Rocky Mountain regions. In order to determine whether the aggregate forecast price
curve was significantly affected by use of different regional benchmarks in the various respondents’ forecasts,
the Committee prepared a sensitivity calculation where only those 111 responses (83%) that were tied to
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Henry Hub or more generic Gulf Coast prices were included. As expected, the sensitivity calculation using
only Henry Hub/Gulf Coast responses resulted in higher prices for every year of the forecast, although the
differences were quite small. The yearly difference varied from 0.6% to 1.7% with an overall average
difference for the 11-year forecast period of 1.1%, relative to the Composite prices shown in Table 3 which
include all respondents regardless of gas pricing benchmark used. Since the differences were so small, a
separate tabulation of this sensitivity calculation was not deemed necessary.
Comparison of Historical SPEE Survey Price Projections
Each year, the Committee compiles price projections for many of the prior Surveys and plots these along with
the composite price projection for the current Survey and the actual historical prices. This comparison of oil
forecasts is shown in Figure 4.
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Figure 4
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Historical Oil Prices and Historical SPEE Survey Price Projections
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$130.00
All historical prices are NYMEX WTI annual averages
$120.00 y
$110.00
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$100.00 2008
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Oil Price (US$/BBL)
$90.00
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Actual 2010
$80.00
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Historical
Pricing
$70.00 2009
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2007
$60.00
2006
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$50.00
2005
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$40.00
2004
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$30.00 2001
1995 1997 2000
2002 2003
$20.00
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1996 1999
1998
$10.00
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For reference purposes, the NYMEX Light Sweet Crude price for April 2010 (the month that the 2010 Survey
data was collected) was US$84.58 per barrel while the 12-month trailing average NYMEX price for April 2010
was US$73.61 per barrel.
The comparison of historical SPEE Survey gas price projections to the most recent 2010 SPEE Survey
composite projection along with actual historical gas prices is shown in Figure 5.
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Figure 5
Historical Natural Gas Prices and Historical SPEE Survey Price Projections
$11.50
All historical prices are NYMEX Henry Hub annual averages
$10.50
$9.50
2008
Gas Price (US$/MMBTU)
$8.50
Actual
Historical 2006
$7.50 Pricing
2007
$6.50
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2005 2009 2010
$5.50
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2001 2004
$4.50
2003
$3.50
By
2002
2000
1998 1999
$2.50 1995 1997 y
1996
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$1.50
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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For reference purposes, the NYMEX Henry Hub gas price for April 2010 (the month that the 2010 Survey data
was collected) was US$3.84 per MMBTU while the 12-month trailing average NYMEX price for April 2010
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was US$4.11 per MMBTU.

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Basis for Price Projections

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Of those 135 respondents providing price projection information, 27% indicated that the provided forecasts
were based on company policy while the remaining 73% indicated that the prices provided were based on
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personal opinion.
In some cases, official "price decks" are developed for use in standardized economic calculations, which vary
from actual price forecasts. Often, these price decks will include some downward adjustment to account for
uncertainty and price volatility (i.e. risk). We asked respondents to indicate whether the price information
provided was a "price deck" used for economic calculations that was different from the respondent's or their
company's price forecast. Of the 135 individuals responding to the question, 26 individuals (19%) indicated
that they provided a price deck, rather than a price forecast. This includes 15% of the producer group, 12% of
the consultant group, and 56% of the banking/energy finance group. This explains why oil and gas price
projections provided by the banking/energy finance groups tend to be lower than the other respondent
groups.
Projection of Operating Costs, Drilling Costs, and Inflation
Each year, the Survey Committee asks respondents to provide projections of increases in future costs in
terms of 3 indices; the standard Consumer Price Index (CPI) as an indicator of overall inflation rates, oil/gas
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field operating costs, and oil/gas field drilling costs. On average, respondents projected that each of these
indices would escalate at rates of 2 to 3 percent per year. Tables 4 through 6 present statistical data on the
respondents' forecast of CPI, drilling, and operating costs, respectively. The data are also presented
graphically in Figures 6 and 7 for all 3 indices combined, first in terms of yearly escalation values and then in
terms of cumulative escalations.
Table 4
Inflation CPI Projection (%)
Composite (127 Respondents)
Year Average Median Standard Dev.

2010 1.78 2.00 1.32
2011 2.08 2.00 1.49
2012 2.44 2.50 1.71
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2013 2.62 3.00 1.87
2014 2.71 3.00 2.00
2015 2.69 2.75 2.11
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2016 2.90 3.00 2.74
2017 2.98 3.00 2.82
2018 2.92 3.00 2.85
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2019 2.75 3.00 2.19
2020 2.74 3.00 2.16
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Table 5
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Drilling Cost Inflation Projection (%)

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2010 2.26 2.00 2.82
2011 2.51 2.50 2.65
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2012 2.49 2.50 2.33

2013 2.55 2.80 2.38
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2014 2.64 3.00 2.33

2015 2.52 3.00 2.36
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2016 2.51 2.95 2.24

2017 2.54 3.00 2.24
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2018 2.54 3.00 2.34

2019 2.48 3.00 2.18
2020 2.51 3.00 2.24
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Table 6
Operating Cost Inflation Projection (%)

2010 1.93 2.00 2.07
2011 2.23 2.00 1.55
2012 2.33 2.50 1.61
2013 2.43 3.00 1.72
2014 2.43 3.00 1.74
2015 2.31 2.90 1.79
2016 2.27 2.80 1.62
2017 2.28 2.90 1.66
2018 2.31 3.00 1.73
2019 2.35 3.00 1.79
2020 2.35 2.90 1.86
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Figure 6
Average Operating Cost, Drilling Cost, and Inflation Projections
5%
Inflation (CPI)
Composite Average Yearly Percentage Increase
Drilling Costs
Operating Expenses
4%
3%
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2%
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1%
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0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Figure 7
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Average Operating Cost, Drilling Cost, and Inflation Projections on a Cumulative Basis
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140%
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Inflation (CPI)
135%
Composite Cumulative Percentage Increase
Drilling Costs
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Operating Expenses
130%
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125%
120%
115%
110%
105%
100%
95%
90%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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RESERVES AND RESOURCES ESTIMATION
Probabilistic Reserves Evaluations
Each year the Survey asks respondents to comment on their use of probabilistic, rather than deterministic,
methods for reserves evaluations and studies. For reference, the 2007 Petroleum Resources Management
System (PRMS) prepared by the Society of Petroleum Engineers makes the following distinction between
"deterministic" and "probabilistic" reserve estimation methods:
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4.2 Deterministic and Probabilistic Methods
Regardless of the analytical procedure used, resource estimates may be prepared using either deterministic
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or probabilistic methods. A deterministic estimate is a single discrete scenario within a range of outcomes
that could be derived by probabilistic analysis.
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In the deterministic method, a discrete value or array of values for each parameter is selected based on the
estimator's choice of the values that are most appropriate for the corresponding resource category. A single
outcome of recoverable quantities is derived for each deterministic increment or scenario.
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In the probabilistic method, the estimator defines a distribution representing the full range of possible values
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for each input parameter. These distributions may be randomly sampled (typically using Monte Carlo
simulation software) to compute a full range and distribution of potential outcome of results of recoverable
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quantities (see "2001 Supplemental Guidelines," Chapter 5, for more detailed discussion of probabilistic
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reserves estimation procedures). This approach is most often applied to volumetric resource calculations in
the early phases of an exploitation and development projects. The resources categorization guidelines
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include criteria that provide specific limits to parameters associated with each category. Moreover, the
resource analysis must consider commercial uncertainties that may have specified boundaries when they
are no longer considered risks for non-development. Accordingly, when probabilistic methods are used,
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constraints on parameters may be required to ensure that results are not outside the range imposed by the
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category deterministic guidelines and commercial uncertainties.

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Deterministic volumes are estimated for discrete increments and defined scenarios. While deterministic
estimates may have broadly inferred confidence levels, they do not have associated quantitatively defined
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probabilities. Nevertheless, the ranges of the probability guidelines established for the probabilistic method
(see Range of Uncertainty, section 2.2.1) influence the amount of uncertainty generally inferred in the
estimate derived from the deterministic method.
Both deterministic and probabilistic methods may be used in combination to ensure results of either method
are reasonable.
This year 76 of 143 respondents (53%) reported that they used the probabilistic method in their evaluations –
an increase over the 49% reported last year. Respondents were further asked to disclose the approximate
percentage of reserve studies that each performed in the last year which incorporated a probabilistic
approach. Of the 76 respondents that indicated they had used a probabilistic approach, 18 (24%) indicated
that they incorporated a probabilistic approach 50% or more of the time. The detailed distribution of
responses to this question is summarized graphically in Figure 8.
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Figure 8
Frequency of Use of the Probabilistic Approach

(76 Respondents)
40%
37% 37% of Respondents reported incorporating a probabilistic approach into 0-5% of their studies
35%
Percentage of Respondents
30%
25%
20%
14%
15% 13%
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11%
10% 8%
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5% 4%
3% 3% 3% 3%
1% 1%
0% 0% 0% 0% 0% 0% 0% 0%
0%
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6-10%
0-5%
11-15%
16-20%
21-25%
26-30%
31-35%
36-40%
41-45%
46-50%
51-55%
56-60%
61-65%
66-70%
71-75%
76-80%
81-85%
86-90%
91-95%
96-100%
Percentage of Studies Probabilistic Method was Incorporated
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Respondents were further asked to indicate their propensity to use a probabilistic approach based on the
stage of field production or reservoir life. As with previous studies, respondents are much more likely to
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employ probabilistic methods in pre-drill or early stages of production and more likely to use deterministic
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approaches during later stages of production. The quantitative results are shown in Figure 9.
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Figure 9
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Frequency of Probabilistic Method Use in Various Stages of Production

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29 37 6
Pre-Drill
Early Stages of 8 54 7
Production
Middle Stages of 2 32 34
Production
Later Stages of 1 15 50
Production
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Respondents that reported use of probabilistic methodology in:
All Instances Some Instances None of the Instances
29th Annual
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Respondents were then asked to report trends observed when comparing their probabilistic and deterministic
results. In order to simplify the reference point for such a comparison, respondents were asked to consider a
comparison of the deterministic proved result to the probabilistic 90th percentile (P90) result. Twenty-five
percent (25%) of the 72 respondents indicated that they had never directly compared probabilistic and
deterministic results in this way, and they had no comment. The remaining 75% provided their findings
regarding the comparison of the two methods by selecting one of 5 qualitative outcomes as shown in Table 7.
Table 7
Comparing Results of Probabilistic and Deterministic Methods
Percentage
Normalized to
Percentage of All Those Who Have
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Result Respondents Compared Results
(Based on deterministic proved and probabilistic P90 points) (72) (54)
The probabilistic result was much more aggressive than the
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deterministic result. 1% 2%
The probabilistic result was somewhat more aggressive than the
deterministic result. 10% 13%
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Mixed results, such that the probabilistic result was sometimes
more aggressive than and sometimes more conservative that the
probabilistic result. 47% 63%
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The deterministic result was somewhat more aggressive than the
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The deterministic result was much more aggressive than the

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I have never directly compared probabilistic and deterministic

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results, so I have no comment. 25%

Totals 100% 100%
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Of the 54 respondents that commented on the result of comparisons between the two approaches, 38%
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indicated that they experienced a systematic difference between probabilistic and deterministic results. This
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included 15% that believed the probabilistic result (P90 benchmark) was either somewhat or much more
aggressive than the deterministic result (total proved benchmark), and 23% that believed the deterministic
result was either somewhat or much more aggressive than the probabilistic result. Each of the major reserve
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guidelines (Canadian National Instrument 51-101/Canadian Oil and Gas Evaluation Handbook, U.S.
Securities and Exchange Commission, and Petroleum Resources Management System), address linkage
between probabilistic and deterministic evaluation methodologies, but the result of this Survey indicates the
complexity of mapping between the two distinct approaches.
The Petroleum Resources Management System (PRMS)
In 2007, the Petroleum Resources Management System (PRMS) was approved by the sponsoring
organizations, including the Society of Petroleum Engineers, the World Petroleum Council, the American
Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. The PRMS is
considered by many to be the international standard guideline for non-governmental reporting of reserves and
resources.
The PRMS is a "Project-Based" system, which guides the classification of reserves and resources based on a
project's chance of commerciality and the categorization of those reserves and resources based on technical
29th Annual
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uncertainty using the evaluator's forecast of future conditions. It applies to both conventional and
unconventional reserves and resources. The entire text of the PRMS document can be found in the
references section at www.SPEE.org.
This year's questionnaire once again posed a question to address the awareness of this relatively new
system. Ninety-eight percent (98%) of respondents reported an awareness of the new system, up from 96%
of respondents last year. This includes 40% of respondents that reported a good understanding, 45% that
reported a basic understanding, and 13% that reported that they had not reviewed the system. The 85% of
respondents who indicated that they had a basic or good understanding of PRMS is up from 77% in 2009 and
71% in 2008, representing a continued growth in understanding of the PRMS over time.
Respondents were asked to provide information on the level to which they (or their firms) have adopted the
PRMS. Twenty-eight percent (28%) reported that their firm used the PRMS as their primary reserves and
resources tracking tool, up from 17% in last year's Survey. Twenty-nine percent (29%) reported a moderate
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degree of adoption of the PRMS, up from 23% in last year's Survey. Those respondents reporting either
moderate or high degree of adoption rose substantially from the last two years, 57% of respondents this year
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versus 40% last year and 36% in 2008. While the question was not specifically asked, it is likely that this
large increase in high or moderate degree of adoption compared to the last 2 years is because of a delayed
migration to the PRMS by those who used the legacy 1997 SPE Reserves and 2001 SPE Resources
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definitions pending a better understanding of the new system.
Twenty percent (20%) of respondents in this year's Survey indicated a low degree of adoption, while 23%
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indicated that their firms were not adopting the PRMS at all. Interestingly, the percentage of respondents that
indicate that their firm is not adopting PRMS continues to drop, down from 30% last year and 40% from the
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2008 Survey. It is important to understand that various regulatory bodies, including the Alberta Securities
Commission and the U.S. Securities and Exchange Commission mandate use of their own rules, rather than
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those of the PRMS, for public reporting.

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Table 8 provides a breakdown of the 2010 Survey results with regard to PRMS awareness and level of
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adoption.
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Table 8
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Awareness Level Degree of Adoption of PRMS

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High Moderate Low Not

(141 Respondents) Degree Degree Degree Adopting Totals
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Aware and have a good understanding 23% 12% 3% 3% 40%

Aware, but have only a basic understanding 5% 16% 16% 8% 45%
Aware, but have not reviewed it 0% 1% 1% 11% 13%
Unaware, have not heard of it 0% 0% 0% 2% 2%
Totals 28% 29% 20% 23% 100%
It was envisioned that the PRMS could be modified or changed as the need arose. In order to gauge the
respondents' views regarding the completeness and effectiveness of the PRMS in its current form, the Survey
asked whether the respondents thought changes would be needed in the near future, and what potential
changes should be addressed. Of the 134 respondents that answered these questions, 2 respondents (1%)
thought that immediate changes were needed, 83 respondents (62%) thought that changes would be needed
in the next 2 to 5 years, and 26 respondents (19%) thought that changes would be needed in the next 6 to 10
years. Twenty-three respondents (17%) did not think that changes would be needed at all in the next decade.
The results are illustrated in Table 9.
29th Annual
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Table 9
Time Frame for PRMS Changes Percentage of
(134 Respondents) Respondents
Immediate changes needed 1%
Changes in 2-5 years 62%
Changes in 6-10 years 19%
Do not think changes will be needed 17%
Of the respondents who thought changes would be needed within the next 10 years, 42 respondents provided
details regarding the types of changes that they thought might be needed. Fifteen of these respondents
(36%) indicated that they had no specific changes in mind, but each anticipated that change would be
required in the future. The remaining 27 respondents expressed concerns that a number of issues would
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need to be addressed, the most common being related to (1) resource plays/unconventional reservoirs, (2)
assignment of proved, probable, and possible undeveloped reserves, and (3) use of new technologies to
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categorize or quantify reserves.
Most of the respondents that suggested PRMS changes with regard to resource plays and unconventional
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reservoirs indicated that clarification was needed to guide the classification of undeveloped reserve locations
as proved, probable, or possible. Respondents further indicated that the contingent and prospective
resources sections of the PRMS should be updated to specifically address the use of these resource
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classifications for quantification of unconventional resources in areas beyond the proved, probable, and
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possible reserves areas. Several of the respondents also indicated the need for further clarification regarding
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the types of reliable technologies that can be used to prove up undeveloped reserves in resource plays and
how the availability of various types of technological data impact classification and categorization of reserves
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versus contingent and prospective resources. A few respondents commented on the need for clarification
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regarding well spacing in resource plays and unconventional reservoirs.

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The respondents that suggested PRMS changes with respect to proved, probable, and possible undeveloped
reserves generally commented on the need for clarification of the 5-year drilling guideline and that
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consideration be made to relax the guideline for probable and possible reserves. A number of respondents
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suggested that the PRMS be updated to reflect new technologies as they emerge, which would help facilitate
more uniform resource classification and reserve categorization across companies. Two respondents
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indicated that the PRMS could do a better job of providing guidance with respect to the currently mature
geophysical technology, including use of amplitude anomalies.
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Several of the respondents indicated a desire for more clarity in the PRMS with respect to scenario criteria,
project definition, product pricing, and economic parameters. One respondent indicated the need to clarify
the linkage between deterministic and probabilistic methodologies, with respect to both quantification and
categorization. And finally, several respondents indicated a need to clean up some internal inconsistencies
within the PRMS itself as well as giving consideration to better aligning the PRMS with other new definition
sets, including those prescribed by the Canadian National Instrument 51-101 and the U.S. Securities and
Exchange Commission.
Revised Disclosure Requirements of the

U.S. Securities and Exchange Commission (SEC)
On January 14, 2009, the SEC published its Final Rule for the Modernization of Oil and Gas Reporting. This
document supersedes prior SEC guidelines and associated supplemental guidance. The new rules were
effective January 1, 2010, and were to be used for all year-end 2009 filings with the SEC. Some facets of
29th Annual
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these new SEC rules are significantly different from the prior SEC rules. As many companies have just
completed the first year of filing under the new SEC rules, the Committee felt that it would be timely to expand
our question set with regard to these rules in the 2010 Survey.
Our first set of questions asked the respondents to classify their opinion regarding the impact of certain rule
changes on reserves assessments under the new SEC rules relative to the old rules. These questions
addressed changes in offset spacing rules (i.e. direct offset requirements), the imposition of time limitations
on undeveloped locations, revisions that allow new technologies to be used in reserves and resources
estimates, revised limitations on booking reserves across major faults (primarily affecting probable and
possible reserve categories), and the ability to disclose reserves and future net revenues at alternate prices
(price sensitivities). Table 10 illustrates the respondents' opinions on the degree to which these new rules are
impacting their reserves assessments.
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Table 10
Impact of SEC Rule Changes
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Number of Responses Percentage of Responses
High Medium Low High Medium Low
Specific SEC Rule Change Impact Impact Impact Impact Impact Impact
Change to spacing rules allowing wells
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beyond direct offsets as proved -
Conventional reservoirs 31 41 51 25% 33% 41%
Change to spacing rules allowing wells
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beyond direct offsets as proved -
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Unconventional reservoirs 51 31 37 43% 26% 31%
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Limitations of PUD bookings based on

fixed forward-looking time (i.e. 5 years) 15 45 62 12% 37% 51%
Limitations of PUD bookings - need to de-
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book older undeveloped locations (i.e.

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those older than 5 years) 14 38 70 11% 31% 57%

Use of technologies other than surface
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flow tests to prove up reserves 18 45 48 16% 41% 43%

Use of technologies other than direct
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contact observation to predict contacts

for proved reserves 13 42 66 11% 35% 55%
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Limitations on booking reserves across

major faults 8 32 78 7% 27% 66%
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Disclosure of reserves and future net

revenue at alternate prices (sensitivities) 16 42 62 13% 35% 52%
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By combining the responses for high and medium impact of each item, we develop a good understanding of
the significance of each specific rule change. Among the SEC changes queried about in the Survey, those
that relate to booking of proved undeveloped locations were deemed to be the most significant. In particular,
respondents thought that the rule change allowing for booking of proved undeveloped locations more than
one direct offset away from the existing wells had a significant impact. Sixty-nine percent (69%) of
respondents thought that this rule change had a moderate or high impact when applied in unconventional
reservoirs and resource plays while 59% of respondents thought that this rule change had a moderate or high
impact when applied in conventional reservoirs. Generally, this rule change would have the impact of
increasing proved undeveloped reserve bookings while the SEC's newly imposed life limitations for proved
undeveloped locations would have an opposite and potentially counteracting impact. Forty-nine percent
(49%) of respondents thought that the SEC rule change limiting proved undeveloped locations to those drilled
in the next 5 years had a moderate or high impact while 43% of respondents thought that the SEC rule
change limiting undeveloped locations to those remaining on the books for 5 years or less had a moderate or
high impact.
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With regard to new technologies, 57% of respondents felt that the SEC rule change allowing the use of
technologies other than surface flow tests to prove up reserves accumulations had a moderate or high impact
on reserves. Forty-five percent (45%) felt that the SEC rule change allowing use of technologies other than
direct contact observation for determination of proved fluid contacts had a moderate or high impact on
reserves.
Respondents were asked what sort of technologies came to mind with respect to the questions on the impact
of new technologies in reserves estimation under the new SEC rules. The most common technologies
mentioned with regard to both technology questions include downhole formation flow test instruments,
downhole pressure test instruments, seismic, including special attribute analyses, and petrophysical analyses.
With specific regard to unconventional reservoirs or resource plays, several respondents mentioned the use
of micro-seismic and other fracture mapping technologies.
Only 34% of respondents thought that the revised SEC rules regarding booking of reserves across faults had
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a moderate or high impact on reserves. This low number was not unexpected, since the rule change primarily
affected probable and possible reserves categorization, rather than proved.
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Forty-eight percent (48%) of respondents indicated that the ability to disclose reserves and future net
revenues at alternate price sensitivities under new SEC rules had a moderate or high impact. The Committee
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elected not to ask a further question regarding the type of impact of the new average price requirement as the
answer was simply expected to reflect the difference between the new and old pricing methodologies, which
will change from year to year.
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Survey respondents were also given the opportunity for free-form input regarding other portions of the new
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SEC rules that they felt significantly impacted SEC reserves filings this past year. Out of 22 detailed
responses, 13 respondents representing 59% of detailed responses commented regarding the new SEC
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pricing calculations. Most of these had positive comments, indicating that the new formula is more realistic,
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would add year-over-year stability to SEC prices, and would tend to reduce reserve fluctuations due solely to
price volatility. A minority of those who commented on new SEC pricing rules had negative comments,
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partially driven by the difference between the 2 methodologies at year-end 2009. One indicated a concern
that the new average price method could cause SEC pricing to trail actual market conditions.
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Respondents also noted that the new SEC rules positively impacted their ability to use probabilistic analysis
and estimate reserves in both unconventional accumulations and oil sands. Several respondents also noted
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that the change allowing reporting of probable and possible reserves had an impact on SEC disclosures.
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Several respondents indicated that the new SEC rules required significant additional record-keeping and
analysis, leading to a substantial increase in time requirements for finalizing the required disclosures,
compared to the old SEC rules.
This year, we asked respondents to comment on the primary reason(s) for providing sensitivities in SEC
filings to the extent that they did so. While our initial intent with this question was to gauge the reasons for
including sensitivities in SEC reporting disclosures, the Committee strongly suspects that many respondents
answered this question with regard to general sensitivity calculations, regardless of whether these sensitivities
were ever actually disclosed in SEC filings. Table 11 shows a breakdown of the responses provided.
29th Annual
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Table 11
Primary Reason(s) for Performing Sensitivities Number of
(106 Respondents) Responses
Show impact of higher prices, relative to SEC pricing 59
Show impact of lower prices, relative to SEC pricing 44
Show impact of potential changes in fiscal terms or economic
parameters that are expected but not currently fixed and determinable 32
Show an upside reserves case in lieu of publishing separate probable
and possible reserves disclosures 23
Show impact of potential changes in production rates or reserve
volumes due to potential events, such as emerging technologies 16
Other 11
Number of responses exceeds number of respondents because of multiple selections.
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We then asked respondents to comment on the degree to which they think the newly revised SEC rules and
the PRMS definitions are similar using a scale of 1 to 5. In aggregate, respondents reported more similarity
than dissimilarity. Figure 10 presents a graphical breakdown of the responses.
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Figure 10
By
Degree of Similarity Between Newly Revised SEC and PRMS Definitions
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High - 5
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49
4
Degree of Similarity
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55
3
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7
2
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1
Low - 1
0 10 20 30 40 50 60
Number of Responses
In addition, we asked respondents to indicate the frequency with which they disclosed probable and possible
reserves under the newly revised SEC rules. Eight percent (8%) of respondents indicated that they disclosed
probable and possible reserves in all instances. Probable reserves were not disclosed in any instances by
56% of respondents, while possible reserves were not disclosed in any instances by 71% of respondents.
Figure 11 is a graphical representation of the result.
29th Annual
Page 20
Figure 11
Instances With Probable and Possible Reserves Public Disclosure

Under Newly Revised SEC Rules
6 (8%)
All 6 (8%)
Instances
29 (37%)
Some 17 (22%) Probable
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Possible
44 (56%)
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None 55 (71%)
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0 10 20 30 40 50 60
Number of Responses
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We then asked respondents who did not report probable and/or possible reserves to disclose the primary
reason(s) for not doing so. Table 12 sets forth those responses.
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Table 12
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Primary Reason(s) for Not Disclosing Probable and Possible Reserves Number of
(88 Respondents) Responses
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Concern about public perception of future revisions in probable/possible volumes 30

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The company does not inventory probable and/or possible reserves 27

Belief that public will not perceive additional company value 22
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Think it will add confusion to the public reserves disclosure 22

Think it is not worth the effort 19
Makes annual reconciliations too complicated or difficult 7
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Other 25
Number of responses exceeds number of respondents because of multiple selections.
For those respondents that listed "other" as one of the reasons for not disclosing probable and/or possible
reserves, we provided an opportunity to elaborate on these other reasons. Three common reasons were
repeated among a number of the respondents, including (1) cost and complexity of the exercise, (2) concern
that financial community could misunderstand the volumes in those categories, and (3) the observation that
peer companies also were not reporting probable and/or possible reserves. Other reasons noted for not
disclosing probable or possible reserves include shortcomings in the new SEC rules with regard to probable
and possible reserves categorization and the belief that the new SEC definitions of these reserve categories
are illogical in a number of ways. Respondents questioned the 5-year drilling limitation for probable and
possible locations, and questioned that such categorizations even require "reasonable certainty" in some
cases.
29th Annual
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VALUATION METHODOLOGIES AND CRITERIA
Introduction
Each year, the SPEE Survey poses a large number of questions in order to compile and summarize the
methods and procedures used by respondents in performing valuations for acquisition/ divestiture, calculating
fair market value, or estimating loan value. As a leading question, respondents were asked if they work
closely with acquisitions and property valuations, either for acquisition/divestiture, calculating fair market
value, or estimating loan value. Seventy-seven percent (77%) of the 143 respondents who answered this
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question responded affirmatively. Statistical data in this section is limited to those respondents who indicate
that they work closely with valuations of oil and gas properties in some form.
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Recent Transaction Information
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This year’s Survey asked respondents to supply the most frequent type of property valued. The majority of
respondents (73%) reported that operated working interests were most frequently valued. Thirteen percent
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(13%) reported most frequently valuing non-operated working interests, and 10% reported most frequently
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valuing royalty interests.
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Respondents were also asked to provide a breakdown of the percentages of properties evaluated by
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geographical region. Eighty-nine (89) respondents indicated that they only evaluated properties in the U.S.
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and Canada while 16 respondents indicated that they evaluated properties elsewhere in the world. In
aggregate, respondents indicated that an average of 92% of properties evaluated were located in the United
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States, 4% were located in Canada, 2% were located in Latin America or South America, and the remaining
2% of properties were located in other parts of the world, including Europe, Asia, Australia, and Africa.
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Respondents were asked to judge the success rates of their companies or clients in making acquisitions
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based on their analyses and/or advice. Of these respondents, 11% replied that they (or their clients) are
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usually successful, 49% replied that they are sometimes successful, and 19% replied that they were seldom
successful in acquiring properties. The remaining 21% reported “other” in answer to the question.
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Each respondent was asked to sum the values of all properties and/or transactions evaluated by the
respondent or the respondent’s company for the preceding 12-month period. Sixty-one percent (61%) of
respondents were involved last year in value assessments and transactions with cumulative values that
exceed $100 million, 43% in assessments with cumulative values that exceeded $250 million, 32% that
exceed $500 million, and 21% in assessments with cumulative values that exceeded $1 billion. These figures
are very similar to last year in which 59% reported transactions in excess of $100 million, 42% in
assessments with cumulative values that exceeded $250 million, 34% that exceed $500 million, and 26% in
assessments with cumulative values that exceeded $1 billion. Figure 12 summarizes this year's findings and
cumulative frequency.
29th Annual
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Figure 12
Total Property Values for Which Respondent Calculated Value During Past 12 Months
35% 105%
100% 97%
30% 84% 90%
Cumulative Frequency (% greater than)

Percentage of Respondents
25% 23% 75%
61% 21%
20% 19% 60%
43%
15% 45%
13% 32%
11%
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10%
10% 30%
21%
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5% 15%
3%
0% 0%
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Less than $1 $1 million to $10 million to $100 million $250 million $500 million Over $1
million $10 million $100 million to $250 to $500 to $1 billion billion
million million
Totals may not add because of rounding. y
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Valuation Pricing Criteria

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The Survey asked the 110 respondents who work closely with acquisitions and evaluations if the pricing
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assumptions used for valuation calculations matched the price projections that they provided in response to
the questions posed in the “Price Projections and Escalations” section of this Survey. Of the 108 that
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responded to the question, 44% indicated that they utilize the same price projections as reported in the earlier
section of this report. The remaining respondents were divided between those reporting the use of a constant
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price model (14%), company policy (15%), and client policy (18%). Nine percent (9%) relied on other
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assumptions. The majority of respondents that reported "other" indicated that they incorporated futures
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pricing, typically NYMEX futures, for all or some portion of the modeling price forecast. Several respondents
reported that they use NYMEX futures for several years forward, and then hold prices constant for the
remaining life of the project. Mention was also made of using lender forecasts in some cases. In addition, a
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number of respondents made it a point to indicate that they typically look at a range of forward price decks,
not just one future pricing scenario, before deciding on a property value.
In a separate question, respondents were asked whether they incorporated hedge prices into their cash flow
evaluations for assessing acquisition price and value, and 36 individuals (33%) responded affirmatively. Of
those 36 respondents who indicated that they incorporated hedge prices into their valuation work, 22%
indicated that they used the hedge price alone, 14% indicated that they used a weighted average of hedge
and bank pricing, 39% indicated that they used a weighted average of hedge and internal client/company
forecast pricing, and 25% indicated that they used other methods. Those that used other methods generally
reported various ways in which they combined hedge prices and other forward price forecasts, either
weighted by relative hedge volumes or based on some other more general weighting ratio.
29th Annual
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Preferred Method for Determining Values
The respondents were asked to provide their most commonly used method of valuation. Similar to past
years, discounted cash flow (DCF) is the most commonly used method (85%) as shown in Figure 13.
Figure 13
Most Commonly Used Method for Determining

Value of Oil and Gas Properties
(109 Respondents)
Discounted
Cash Flow
85%
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Multiple of
Monthly Cash
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Flow
4%
Other P/I (Profit-To- Return on
4% Investment Investment
Ratio) 6%
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Totals may not add because of rounding. 2%
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While DCF remains the overall preferred method, rarely is DCF, or any other single valuation method, used
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alone in assessing property values. Our second question with respect to valuation methodology asked
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respondents to identify all secondary methods used in the valuation process beyond their primary method.
Through this combination of questions, only 6% of respondents indicated that they relied on a single method
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of valuation (all of these used DCF). Seventy-five percent (75%) of respondents indicated that they utilized a
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total of 2 to 5 different methods before determining a property value, and the remainder utilized 6 or more
different methods. A comparison of the relative utilization of all common evaluation methodologies, both
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those used as primary valuation tools and those utilized as secondary tools is provided in Figure 14. This
chart clearly shows that oil and gas property valuation is a complex process, involving multiple methodologies
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and substantial analysis.

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Figure 14
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Primary and Secondary Evaluation Methods Utilized

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Discounted Cash Flow 93 11
Return on Investment 6 59
Payout 59
Multiple of Monthly Cash 4 54

Flow
$/BOE or $/MCFE 57
Comparable Sales 37
P/I (Profit-To-Investment 2 33 Primary Secondary

Ratio)
Other 4 8
0 20 40 60 80 100 120
Reported Instances of Primary and Secondary Utilization
29th Annual
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Discount Rates
An important variable within DCF analysis is the use of a prescribed discount rate. The U.S. SEC regulations
and the Canadian National Instrument 51-101 regulations both require that discounted cash flows be
calculated and reported using a 10% discount rate. These governmental authorities recognize, and even
explicitly state, that the use of a 10% discounted present worth is not intended to reflect a fair market value,
rather the 10% discount rate provides a consistent basis for comparing discounted future net revenues of
different companies. The PRMS provides more latitude in selecting a discount rate for DCF calculations. The
PRMS calls for "The application of an appropriate discount rate that reasonably reflects the weighted average
cost of capital or the minimum acceptable rate of return applicable to the entity at the time of the evaluation".
It is not uncommon to perform a DCF analysis at various discount rates in order to determine the sensitivity of
discounted future net revenue to the discount rate. Most third party consultants tend to use a standard
discount rate for a primary discounted cash flow calculation while providing secondary discounting
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calculations at a series of other discount rates. Many consultants use a standard discount rate of 10% for
primary discount calculations, generally for consistency with governmental regulations and standard
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comparative analysis, not because the rate is thought to represent a fair market value.
For the purposes of this Survey, respondents were provided with the following definition of Discount Rate,
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expressed on a yearly basis, as shown below:
Discount Rate y
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“The yield rate used to determine the present value of a future cash flow based solely on the cost of capital”.
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As a precursor to Survey questions regarding risk and discounting of future cash flows to account for that
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risk, respondents were asked to report their internal Discount Rate in accordance with the definition provided
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above. Of the 102 respondents that answered this question, 42 of them (41%) specified exactly 10.0% as
their Discount Rate, while 76 respondents (75%) specified a Discount Rate between 8.0% and 12.0%
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inclusive.
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The Committee then summarized only those respondents that represented producing companies; 51% of
those responses specified a Discount Rate of exactly 10.0% while 74% specified a Discount Rate between
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8.0% and 12.0% inclusive. Despite the fact that consultants often default to a 10% primary discount rate
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when preparing third party reports, the consulting group showed less of a propensity to default to a 10%
Discount Rate, as defined above, than the producing group; only 40% of consultants specified a Discount
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Rate of exactly 10% while 69% of consultants specified a Discount Rate between 8.0% and 12.0% inclusive.
For banking purposes, 9% is the more common Discount Rate standard as reflected by the fact that 71% of
those respondents representing the banking and energy finance sectors specified a Discount Rate of exactly
9%. For this same group, 86% specified a Discount Rate between 8.0% and 12.0% inclusive. The median
Discount Rate value for both producers and consultants is 10.0% while the median Discount Rate value for
those in banking and energy finance is 9.0%. Of the 102 respondents who provided their Discount Rate, 96%
indicated that the Discount Rate specified is on a pre-tax basis. Figures 15 through 18 provide additional
information regarding the spread of the Discount Rate responses, both in aggregate and for the different
respondent groups.
29th Annual
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Figure 15
Discount Rate Applied to Cash Flows, Composite

(102 Respondents)
60% 55%
Median = 10.0%
50%
Percent of Respondents
40%
30%
EE
20%
SP
14% 13%
12%
10% 5%
By
2%
0%
0% y
<6% 6.0% to 7.5% to 9.0% to 10.5% to 12.0% to >13.5%
nl
<7.5% <9.0% <10.5% <12.0% <13.5%
O
Totals may not add because of rounding. Discount Rate

n
tio
Figure 16
bu
Discount Rate Applied to Cash Flows, Producers

(43 Respondents)
tri
is
60%
Median = 10.0%
rD
51%
50%
Fo
40%
30%
20% 16%
14%
12%
10% 5%
2%
0%
0%
<6% 6.0% to 7.5% to 9.0% to 10.5% to 12.0% to >13.5%
<7.5% <9.0% <10.5% <12.0% <13.5%
Discount Rate
29th Annual
Page 27
Figure 17
Discount Rate Applied to Cash Flows, Consultants

(42 Respondents)
50%
50% Median = 10.0%
45%
40%
35%
30%
25%
EE
20% 17%
SP
15% 12% 12%
7%
10%
2%
By
5% 0%
0% y
<6% 6.0% to 7.5% to 9.0% to 10.5% to 12.0% to >13.5%
nl
<7.5% <9.0% <10.5% <12.0% <13.5%
O
Discount Rate
n
tio
Figure 18
bu
Discount Rate Applied to Cash Flows, Banking/Energy Finance

(14 Respondents)
tri
86%
90% Median = 9.0%
is
rD
80%
70%
Fo
60%
50%
40%
30%
20%
7% 7%
10%
0% 0% 0% 0%
0%
<6% 6.0% to 7.5% to 9.0% to 10.5% to 12.0% to >13.5%
<7.5% <9.0% <10.5% <12.0% <13.5%
Discount Rate
29th Annual
Page 28
Respondents were asked to identify the method used to arrive at their reported Discount Rate. Methods
based on internal financial considerations (cost of equity, cost of debt, and cost of capital) together comprised
36% of the total responses in this year's Survey. “Professional Judgment” was specified by 22% of
respondents. Figure 19 presents a detailed breakdown of all responses.
Figure 19
Basis of Respondents' Discount Rate

(102 Respondents)
Other Industry
6% Standard Cost of Equity
Company
4% 9%
Policy Pre-tax Cost of
6% Debt
Provided by
9%
EE
Client
5%
Past SPEE Cost of Capital
SP
Surveys 18%
6%
By
Professional Prime Lending
Judgment Rate/
22% Financial Judgment
Indices
2%
y 13%
nl
O
n
tio
Incorporating Risk into Discounted Cash Flow (DCF) Analysis

bu
Most evaluations of oil and gas reserves are initially performed in an unrisked manner, with reserve
tri
categorizations (proved, probable, and possible) and reserve subdivisions (producing, non-producing/behind-
is
pipe, and undeveloped) serving as the only indicators of relative risk, although these indicators are qualitative
at best. In order to develop a value from unrisked DCF models, risk factors are usually applied. Two of the
rD
most common methods of incorporating risk into DCF models include risking the reserves (i.e. application of
Reserve Adjustment Factors) and risking the Discount Rate (i.e. use of a Risk Adjusted Discount Rate). The
Fo
Survey provided the following definitions for each of these concepts:
Risk Adjusted Discount Rate (RADR)
The yield rate used when evaluating the acquisition price or value of an oil/gas asset. This factor should
include a consideration for the cost of capital, a profit or expected rate of return for the buyer and any
risk/uncertainty that the evaluator may choose to impute to the asset. Because the Risk Adjusted Discount
Rate includes a profit for the buyer, it is expected that it will be larger than the Discount Rate. Some
evaluators allow reserve risk to influence their assessment of this discount rate; others do not, choosing
instead to handle reserve risk exclusively with Reserve Adjustment Factors (defined below).
Reserve Adjustment Factor (RAF)
The factors used to downward adjust reserves for risk by reserve status and category, generally expressed
as a percentage. Some evaluators apply the factor to the estimated reserve volume (STB or Mcf) in order to
arrive at a risk adjusted reserve volume before performing the cash flow analysis. Other evaluators perform
the cash flow analysis before risk adjusting the reserves and only thereafter apply the Reserve Adjustment
Factor to the cash flows ($) for each reserve category.
29th Annual
Page 29
After providing these definitions, the 2010 Survey asked respondents to specify how they typically adjusted
cash flow models to account for risk and uncertainty. Based on 104 responses, exclusive use of RAFs was
identified as the most common method of incorporating risk, although a significant percentage of respondents
either reported exclusive use of RADRs or use of the two methods together. Response percentages are
shown in Figure 20.
Figure 20
How Respondents Adjust Cash Flow Models to

Account for Risk and Uncertainty
(104 Respondents)
Use RAFs, but
Exclusively
then make an
within the
EE
additional
RADR
correction in
26%
the RADR
SP
31%
By
Exclusively
use RAFs
y
43%
nl
O
n
tio
Risk Adjusted Discount Rate (RADR)

bu
Fifty-nine (59) respondents indicated that they either exclusively used Risk Adjusted Discount Rates (RADRs)
or used RADRs in conjunction with Reserve Adjustment Factors (RAFs) to account for reserve risk in DCF
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analysis. These respondents were asked to provide their most typically used RADR as well as their range of
is
RADRs, minimum and maximum. Forty-one (41) of those 59 respondents that indicated they used RADRs
rD
either exclusively or with RAFs also provided information about their RADR values. In the Table 13 the
Committee prepared (1) an average and median of these respondents' "typical" RADR, and (2) the absolute
minimum and average of the low-end range values and absolute maximum and average of the high-end
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range values. Figure 21 provides a histogram of the most typically used RADR values provided by these
respondents.
29th Annual
Page 30
Table 13
RADR for Respondents Who Use RADRs Exclusively or In Conjunction with RAFs (%)
Typical Typical Absolute Absolute Average Average
Responses Average Median Minimum Maximum Minimum Maximum
Combined 41 18.9 15.0 5.0 100.0 16.4 28.5
Producer 18 18.3 15.0 5.0 100.0 15.7 30.2
Consultant 18 18.8 15.0 8.0 90.0 15.8 26.4
and Other 5 21.2 15.0 8.0 55.0 25.0 28.3
EE
Figure 21
SP
RADR for Respondents Who Use
RADRs Exclusively OR In Conjunction with RAFs for Risking
(41 Respondents)
By
49%
50%
45%
y
nl
40%
35%
30%
n
25% 20%
tio
20%
bu
15% 10% 10% 10%
10%
2%
tri
5%
is
0%
4.0% to 8.0% to 12.0% to 16.0% to 20% to >24%
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<8.0% <12.0% <16.0% <20% <24.0%
Typically Used Risk Adjusted Discount Rate

Fo
29th Annual
Page 31
Table 14 and Figure 22 provide a compilation of the same Risk Adjusted Discount Rate (RADR) information
for the 24 respondents who use RADRs exclusively and also provided RADR values.
Table 14
RADR for Respondents Who Use RADRs Exclusively (%)
Combined 24 22.2 15.0 5.0 90.0 17.6 28.8
Producer 11 21.3 15.0 5.0 90.0 15.4 26.8
Consultant 10 21.4 15.0 8.0 90.0 17.0 29.3
and Other 3 Too few responses to report
EE
SP
Figure 22
RADR for Respondents Who Use ONLY RADRs for Risking
By
(24 Respondents)
58%
60% y
nl
50%
O
40%
n
tio
30%
bu
17%
20%
tri
8% 8%
10% 4% 4%
is
rD
0%
4.0% to 8.0% to 12.0% to 16.0% to 20% to >24%
<8.0% <12.0% <16.0% <20% <24.0%
Fo

Table 15 and Figure 23 provide a compilation of the same Risk Adjusted Discount Rate (RADR) information
for the 17 respondents who use both RADRs and Reserve Adjustment Factors (RAFs) and also provided
RADR values.
Table 15
RADR for Respondents Who Use Both RADRs and RAFs (%)
Combined 17 14.2 15.0 5.0 100.0 14.8 28.2
Producer 7 13.6 12.0 5.0 100.0 16.1 33.6
Consultant 8 15.6 15.0 8.0 27.0 13.5 21.0
and Other 2 Too few responses to report
29th Annual
Page 32
Figure 23
RADR for Respondents Who Use BOTH RADRs and RAFs for Risking
(17 Respondents)
40%
35% 35%
35%
30%
25%
18%
20%
15% 12%
EE
10%
SP
5%
0% 0%
0%
By
4.0% to 8.0% to 12.0% to 16.0% to 20% to >24%
<8.0% <12.0% <16.0% <20% <24.0%
y
nl
We asked the 41 respondents, who either use RADRs exclusively or in conjunction with RAFs, whether the
RADR provided was applied to cash flow projections made before or after federal income taxes. All but 1 of
O
the 41 respondents indicated that they applied the RADR to cash flows before income tax.
n
The 41 respondents were then asked to identify from a list of provided risk factors, all of those that influenced
tio
their decision regarding the specific RADR used. Table 16 summarizes this year's findings.
bu
Table 16
tri
Factors Affecting Risk Adjusted Discount Rate (RADR)

is
(41 Respondents)
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Count of Incorporating Risk Factor

Potential Risk Factors Responses into RADR
Reserve Risk 32 78%
Fo
Price Uncertainty 30 73%

Profit 23 56%
Expense Uncertainty 22 54%
Mechanical Risk 20 49%
Unidentified Reserves Potential 12 29%
Political/Regulatory Uncertainty 10 24%
Other 2 5%
Total number of responses exceeds number of respondents because of multiple selections.
And finally, the 41 respondents who indicated that they used RADRs for risking, either alone or in conjunction
with RAFs, were asked if they adjusted their RADR downward to account for synergistic or strategic effects of
the potential acquisition. Five percent (5%) indicated they always made this sort of adjustment while 15%
indicated that they made this adjustment most of the time, 41% indicated that they made this adjustment
some of the time, and 39% indicated that they never made this sort of adjustment.
29th Annual
Page 33
Reserve Adjustment Factors (RAFs)
Of the 104 respondents who provided information regarding the type of adjustments they perform to DCF
models to account for risk and uncertainty, 43% of respondents said that they used RAFs exclusively.
Another 31% responded that they use RAFs in combination with RADRs. These 2 groups of respondents
were asked to provide their typical RAFs by reserve category (proved, probable, possible) and sub-
classifications (producing, shut-in, behind pipe, and undeveloped). Of the 77 respondents that indicated they
used RAFs, either alone or in conjunction with RADRs, 64 respondents provided specific RAF values.
Historically, responses provided by respondents affiliated with production companies or consulting firms have
been used as a proxy for RAFs applicable to acquisition evaluations while those responses provided by
respondents affiliated with banking or energy finance firms have been used as a proxy for RAFs applicable to
loan evaluations. This year's Survey continues that practice.
EE
The Committee has prepared a large number of tables in order to present statistics regarding the 64 RAF
SP
responses in various meaningful ways. Following is an outline of the various tables presented in the next 3
pages:
 Respondents who use RAFs alone and respondents who use RAFs in conjunction with RADRs
By
for risking
o All affiliations (composite) y
o Producers , Consultants and Other – proxy for acquisition factors
nl
o Banking/Energy Finance – proxy for loan factors
O
 Respondents who use RAFs alone for risking

o All affiliations (composite)
n
o Producers , Consultants, and Other – proxy for acquisition factors

tio
o Banking/Energy Finance – proxy for loan factors


bu
Respondents who use RAFs in conjunction with RADRs for risking

o All affiliations (composite)
tri
o Producers, Consultants, and Other– proxy for acquisition factors

o Banking/Energy Finance – proxy for loan factors (Not shown since only 1 respondent
is
existed in this group)

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It is expected that, for any given reserve category and sub-classification, the RAF applied would be less (i.e.
reflecting more risk adjustment) when RAF is the only risk method compared to the factor applied when RAF
Fo
is used in conjunction with an RADR. The calculated average RAF values generally follow this trend for each
of the proved reserve categories, although this trend is not as evident for the probable and possible reserve
categories. An investigation of the various responses indicated that this counterintuitive statistical outcome is
largely driven by respondents who provided an RAF of 0.0% for all possible or all probable and possible
reserve categories, indicating that they do not assign any value to these categories. A disproportionate
number of respondents that value possible or probable/possible reserve categories at 0.0% tend to report use
of RAFs and RADRs combined, which reduces the overall average probable and possible RAFs for this
group.
Tables 17 through 19 are a compilation of Reserve Adjustment Factors (RAFs) for respondents using solely
RAFs and respondents using a combination of RAFs and Reserve Adjustment Discount Rates (RADRs) for
risking.
29th Annual
Page 34
Table 17
Composite RAFs for Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%)
Standard
(64 Respondents) Average Median Deviation Minimum Maximum Mode
Proved Producing 97.1 100.0 4.2 82.5 100.0 100.0
Proved Shut-In 74.7 80.0 20.4 0.0 100.0 75.0
Proved Behind Pipe 67.7 75.0 17.7 0.0 90.0 75.0
Proved Undeveloped 51.7 50.0 16.6 0.0 90.0 50.0
Probable Producing 29.7 30.0 24.2 0.0 80.0 0.0

Probable Shut-In 24.1 25.0 21.9 0.0 70.0 0.0
Probable Behind Pipe 22.6 25.0 19.2 0.0 60.0 0.0
Probable Undeveloped 20.4 25.0 17.4 0.0 60.0 0.0
Possible Producing 10.1 0.0 15.6 0.0 70.0 0.0

Possible Shut-In 8.4 0.0 12.5 0.0 50.0 0.0
Possible Behind Pipe 7.1 0.0 9.6 0.0 35.0 0.0
EE
Possible Undeveloped 5.9 0.0 7.7 0.0 30.0 0.0
SP
Table 18
RAFs Used for Acquisitions - Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%)
By
Standard
Proved Shut-In 75.3 80.0 20.1 0.0 100.0 75.0
y
nl
O

Probable Shut-In 28.0 30.0 21.2 0.0 70.0 0.0
n

tio

bu
Possible Shut-In 9.8 5.0 13.0 0.0 50.0 0.0

tri

is
rD
Table 19
RAFs Used for Loans - Respondents Who Use RAFs Exclusively or In Conjunction with RADRs (%)
Standard
Fo

Proved Shut-In 70.0 80.0 24.0 25.0 90.0 80.0

Probable Shut-In 0.0 0.0 0.0 0.0 0.0 0.0

Possible Shut-In 0.0 0.0 0.0 0.0 0.0 0.0
29th Annual
Page 35
Tables 20 through 22 are a compilation of Reserve Adjustment Factors (RAFs) for respondents using solely
RAFs for risking.
Table 20
Composite RAFs for Respondents Who Use Only RAFs (%)
Standard
Proved Shut-In 75.0 80.0 18.3 0.0 95.0 75.0

Probable Shut-In 25.5 25.0 22.8 0.0 70.0 0.0
EE
SP
Possible Shut-In 10.0 0.0 13.3 0.0 50.0 0.0
By
Table 21
y
nl
RAFs Used for Acquisitions - Respondents Who Use Only RAFs (%)
Standard
O

n
Proved Shut-In 74.5 75.0 19.0 0.0 95.0 75.0

tio

bu

Probable Shut-In 31.1 30.0 21.4 0.0 70.0 0.0
tri

is

rD
Possible Shut-In 12.2 10.0 13.8 0.0 50.0 0.0

Fo
Table 22
RAFs Used for Loans - Respondents Who Use Only RAFs (%)
Standard
Proved Shut-In 77.5 80.0 14.7 50.0 90.0 80.0

Probable Shut-In 0.0 0.0 0.0 0.0 0.0 0.0

Possible Shut-In 0.0 0.0 0.0 0.0 0.0 0.0
29th Annual
Page 36
Tables 23 and 24 are a compilation of Reserve Adjustment Factors (RAFs) for respondents that use a
combination of RAFs and Risk Adjusted Discount Rates (RADRs) for risking.
Table 23
Composite RAFs for Respondents Who Use RAFs and RADRs (%)
Standard
Proved Shut-In 74.2 80.0 23.8 0.0 100.0 80.0

Probable Shut-In 21.7 20.0 20.7 0.0 50.0 0.0
EE
SP
Possible Shut-In 5.3 0.0 10.5 0.0 40.0 0.0
By
Table 24
y
RAFs Used for Acquisitions - Respondents Who Use RAFs and RADRs (%)
nl
Standard
O

Proved Shut-In 76.3 80.0 21.8 0.0 100.0 80.0
70.4 72.5 12.0 50.0 90.0 60.0
n
Proved Behind Pipe

tio

bu
Probable Shut-In 22.9 20.0 20.5 0.0 50.0 0.0

tri

is
Possible Shut-In 5.6 0.0 10.8 0.0 40.0 0.0

rD

Fo
RAFs Used for Loans - Respondents Who Use RAFs and RADRs (%)
Only 1 respondent, so results are withheld
How Reserve Adjustment Factors are Applied
Of the 64 respondents who provided their typical Reserve Adjustment Factors (RAFs) used for valuations,
either alone or in conjunction with Risk Adjusted Discount Rates (RADRs), 33% reported applying those
factors to reserve volumes before performing DCF analysis or to sales revenues within the DCF analysis
before subtracting future operating costs, capital costs, abandonment costs, or taxes. This methodology has
a more conservative valuation impact in that revenues are reduced by the RAFs, but the costs and expenses
29th Annual
Page 37
are not reduced. Sixty-three percent (63%) reported applying their RAFs either to future net revenues after
subtracting future operating costs, capital costs, abandonment costs, and taxes or to the discounted cash
flows directly. This methodology reduces expenses in proportion to reserves and revenues, thus providing a
less conservative valuation result. Five percent (5%) selected "other" and specifically indicated that their
decision as to which method was most appropriate varied on a case-by-case basis. Figure 24 shows the
breakdown of how respondents apply RAFs.
Figure 24
How Reserve Adjustment Factors are Applied

(64 Respondents)
To the unrisked
Other
DCF after
5%
performing cash
EE
flow analysis
53%
SP
To reserve
To estimated volumes before
future net performing cash
By
revenues after To gross flow analysis
subtracting estimated 30%
costs and taxes revenues before
9% subtracting
y
costs and taxes
3%
nl
O
The respondents who reported their typical RAFs used for valuations, either alone or for use in combination
n
with RADRs, were further asked how their application of the RAF affected reserve flowstreams on a year-by-
tio
year basis. Forty-six (46) respondents answered this question, and approximately 85% of these respondents
indicated that the net effect was to reduce the production flowstream volumes uniformly over time. The
bu
remaining respondents indicated that their methodology resulted in changes to the projected production
flowstreams leading to an effect other than the uniform reduction of production over time, for instance, a
tri
change to the decline rate of the projected reserve flowstreams.

is
Value Adjustments for Unquantified Reserve Potential

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Fo
We asked respondents to indicate, regardless of the type of risk factors applied, if they adjusted their
valuations to account for unquantified reserve potential. Five percent (5%) of the 96 respondents indicated
they always made this sort of adjustment, 15% indicated that they made this adjustment most of the time,
42% indicated that they made this adjustment some of the time, and 39% indicated that they never made this
sort of adjustment. Figure 25 illustrates a breakdown of these results.
29th Annual
Page 38
Figure 25
Frequency of Value Adjustment for Unquantified Reserve Potential
(96 Respondents)
5%
Always
15%
Most of the Time
Frequency
EE
42%
Sometimes
SP
39%
Never
By
0% 5% 10% 15%
y20% 25% 30% 35% 40% 45%
nl
Number of Respondents
O
n
Financing and Borrowing Rate Information

tio
bu
Each year, respondents are asked to provide information with regard to financing and borrowing rates.
Seventy-five (75) individuals responded when asked to indicate the percentage of transactions they were
tri
involved in or evaluated where debt was used as a means of financing the acquisition. Of these 75
is
respondents, 18 (24%) indicated that debt was not used to finance acquisitions in any case while 17 (23%)
indicated that debt was a component of financing in all cases. The remaining 40 respondents (53%) indicated
rD
that debt was used as a component of financing in some of the cases, ranging from 10% of the cases to 95%
of the cases. The overall average use of debt for these 40 individuals was 60%.
Fo
For the purposes of this Survey, respondents were provided with the following definition of Borrowing Rate:
Borrowing Rate
The cost of debt component of company's/client's overall cost of capital.
Respondents were then asked to disclose their average Borrowing Rate. Several respondents provided
answers relating their Borrowing Rate to moving benchmarks such as LIBOR or the Prime Rate, while 50
respondents provided numerical Borrowing Rate averages. These Borrowing Rates ranged from 3.0% to
15.0% with a mean of 6.8% and a median lying between 6.0% and 6.5%. Figure 26 further illustrates the
various responses.
29th Annual
Page 39
Figure 26
Borrowing Rate - Cost of Debt

(50 Respondents)
35% 32%
30%
26%
24%
25%
20%
EE
15%
SP
10%
6%
4% 4% 4%
By
5%
0%
y
nl
<4.0% 4.0% to 5.5% to 7.0% to 8.5% to 10.0% to >11.5%
<5.5% <7.0% <8.5% <10.0% <11.5%
O
Borrowing Rate
n
tio
Respondents were further asked to categorize the primary source of debt utilized in the past year.
bu
Responses were received from 61 individuals, and the majority (74%) specified commercial bank debt. Ten
percent (10%) of respondents specified mezzanine financing, 5% specified equity partnership, and 11%
tri
specified that some combination of these sources was used, potentially along with other sources of funds.
Figure 27 illustrates these responses.
is
rD
Figure 27
Fo
Sources of Debt Financing for Acquisitions

Combination/
Equity Other
Partnership 11%
5%
Mezzanine
Financing
10%
Commercial
Bank Debt
74%
29th Annual
Page 40
Transaction Values Measured by Oil or Gas Volume Equivalence
Respondents were asked to report their range of values for property transactions in terms of either US$/BOE
or US$/MCFE. The Survey further requested that respondents break these values down by reserve category.
A total of 40 respondents provided values, including 16 who answered in terms of oil equivalence only, 2 who
answered in terms of gas equivalence only, and 22 who answered in terms of oil equivalence and gas
equivalence. Table 25 presents the average high and low values of the ranges reported in total and for each
reserves category.
Table 25
Average US$/BOE and US$/MCFE Value Based on Reserve Category
Category (# BOE Respondents/# MCFE Respondents) US$/BOE US$/MCFE
EE
Low High Low High
Overall Without Distinction to Reserves Category (28/20) 10.21 24.92 1.19 2.76
Proved Developed Producing Reserves (33/21) 16.99 26.60 1.68 2.88
SP
Proved Non-Producing Reserves (26/15) 11.68 19.16 1.18 2.27
Proved Undeveloped Reserves (25/16) 8.14 15.23 0.90 1.72
Probable Reserves (24/12) 3.75 7.96 0.25 0.67
By
Possible Reserves (23/12) 1.27 3.22 0.08 0.29
y
Sixty percent (60%) of 100 respondents reported calculating MCF/BBL factors based on BTU equivalence
nl
while 40% preferred to use price equivalence instead. The average MCF/BBL factor reported by those who
O
base the factor on BTU equivalence was 6.1 MCF/BBL.

n
Based on an analysis of the average transaction values provided by those 22 respondents that submitted
tio
both $/BOE and $/MCFE values, it appears that the majority may have reported representative $/BOE values
for those properties transacted that are primarily oil and reported representative $/MCFE values for those
bu
properties transacted that are primarily gas.

tri
Closing
is
rD
Each year, the Committee strives to keep the Survey relevant and informative, while being cognizant of the
time and effort required to complete the questionnaire. The SPEE and the Survey Committee would like to
Fo
thank all of those who took the time to prepare responses to the 2010 Survey.
Next year will mark the 30th year of the Annual Survey. We appreciate feedback from those that read and use
the Survey each year, and will consider this feedback when formulating and preparing the 2011 Survey.
Please contact the SPEE using the information shown at the front of this report if you have any such
comments. If you are interested in participating in next year's Survey please contact us, as we are continually
evaluating our distribution list for new participants who have relevant experience.
29th Annual
Page 41
Fo
rD
is
tri
bu
tio
n
O
nl
y
By
SP
EE
Appendix I: Ranges of Uncertainty Surrounding Crude Oil
and Natural Gas Price Projections
The following charts show, by affiliation the outlook for crude oil and natural gas prices presented in the Price
and Cost Projections section of this report along with curves showing the 80% confidence limits associated
with each projection.
Oil Price Projections: Composite Natural Gas Price Projections: Composite

Average & 80% Confidence Interval Average & 80% Confidence Interval
140.00 10.00
130.00 9.00
120.00 8.00
EE
110.00 7.00
6.00
US$/MMBTU
100.00
US$/BBL
SP
90.00 5.00
80.00 4.00
70.00 3.00
By
60.00 2.00
50.00 1.00
40.00
y0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
nl
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
O
Oil Price Projections: Producers Natural Gas Projections: Producers

n
140.00 10.00
tio
130.00 9.00
120.00 8.00
bu
110.00 7.00
100.00 6.00
US$/MMBTU
tri
US$/BBL
90.00 5.00
is
80.00 4.00
70.00
rD
3.00
60.00 2.00
50.00 1.00
Fo
40.00 0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Oil Price Projections: Consultants Natural Gas Price Projections: Consultants

140.00 10.00
130.00 9.00
120.00 8.00
110.00 7.00
100.00 6.00
US$/MMBTU
US$/BBL
90.00 5.00
80.00 4.00
70.00 3.00
60.00 2.00
50.00 1.00
40.00 0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
29th Annual
Page 43
Oil Price Projections: Banking/Energy Finance Natural Gas Price Projections: Banking/Energy Finance
140.00 10.00
130.00 9.00
120.00 8.00
110.00 7.00
100.00 6.00
US$/MMBTU
US$/BBL
90.00 5.00
80.00 4.00
70.00 3.00
60.00 2.00
50.00 1.00
40.00 0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
EE
Oil Price Projections: Other Natural Gas Price Projections: Other
SP
140.00 10.00
130.00 9.00
By
120.00 8.00
110.00 7.00
100.00 6.00
US$/MMBTU
US$/BBL
90.00 5.00
y
nl
80.00 4.00
O
70.00 3.00
60.00 2.00
n
50.00 1.00
tio
40.00 0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
bu
tri
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29th Annual
Page 44
Appendix II:
TWENTY-NINTH ANNUAL
SURVEY OF PARAMETERS USED IN PROPERTY EVALUATION©
APRIL 2010
COVER SHEET: TO BE REMOVED BY NON-TECHNICAL PERSONNEL
Thank you for choosing to complete this survey.
You may complete and submit the survey form on-line or digitally (our two preferred methods), or print, complete,
EE
and return this survey form via mail or fax (address and fax number are located at the end of the survey).
Identifying information on this first page is for record keeping purposes only. This information will removed before
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delivery to the Parameter Survey Committee in order to allow your responses to be anonymous.
Please use United States dollars ($) for all monetary amounts.
By
y
Please enter your email address (as filed with SPEE if you are an SPEE member):
nl
O
n
tio
How would you like to receive the Survey Report?

 I plan to attend the SPEE Annual Conference and will receive the report there
bu
 I do not require the report

tri
 Please send the report to my SPEE address of record

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 Please send the report to the following address:

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Name: ___________________________________________________________________________
Fo
Address: __________________________________________________________________________
City: _____________________________________________________________________________
State: ____________________________________________________________________________
Postal Code: ______________________________________________________________________
Country: __________________________________________________________________________
©
The Society of Petroleum Evaluation Engineers maintains rights to all prior versions and compilations of its Survey of Economic Parameters
Used in Property Evaluation, whether or not specifically noted.
Page 45
TWENTY-NINTH ANNUAL
SURVEY OF PARAMETERS USED IN PROPERTY EVALUATION©
APRIL 2010
PART I: GENERAL INFORMATION
1. What is your area of expertise?

 a. Producer
 b. Consultant
EE
 c. Banking/Energy Finance
 d. Private Equity
SP
 e. Other, please specify: _________________________________________________________
By
2. Number of company employees involved in oil and gas activities? y
 a. 5 or less
nl
 b. 6-30
O
 c. 31-100
n
 d. More than 100

tio
bu
3. Are you an SPEE member?

tri
 a. Yes
is
 b. No
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4. How many SPEE surveys have you participated in previously?

Fo
(Enter zero if this is your first survey.)
_________________
©
Page 46
PART II: PRICE AND COST FORECASTS
5. Projected oil and gas prices for 2010:

a. State your projected average oil price for 2010 _______________ $/STB
b. State the basis for your 2010 oil price (NYMEX, Posted, Other) _____________________
c. Using what crude type as a reference (WTI, Brent, Arabian Light, _____________________
etc.)?
d. State your projected average gas price for 2010 ___________ $/MMBTU
EE
e. State the basis for your 2010 gas price (NYMEX, Gulf Coast Spot, _____________________
Permian Spot, Rockies Spot, Midcon Spot, Appalachia Spot, Other)
SP
f. Were your 2010 prices influenced by inflation?  Yes  No
By
6.-10. Price and expense projection table
y
nl
Please enter all price figures in nominal terms (i.e., the prices that are expected to actually prevail during
O
the year for which they are entered.)

n
6. 7. 8. 9. 10.
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Nominal Nominal Operating Expense Drilling Cost Inflation

bu
Oil Price Gas Price Escalation Escalation CPI

Year ($/STB) ($/MMBTU) (%/year) (%/year) (%/year)
tri
2010
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2011
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2012
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2013
2014
2015
2016
2017
2018
2019
2020
Page 47
11. What are your projections of future prices and costs presented in the previous questions
based on?
(Select only one. If your projections are based on a combination of the answers, select "Personal opinion".)
 a. Client policy
 b. Company policy
 c. Personal opinion
12. Some organizations may maintain both a price forecast and a separate official "Price Deck",
which is used for economic calculations. In these cases, the "Price Deck" may differ from the
forecast prices for several reasons, including some risk adjustment for volatility. For the oil and
gas price projections provided in the last few questions, were the prices entered considered a
"Price Deck" or other risk-adjusted pricing profile that varies from the price forecast?
 a. Yes, I entered a "Price Deck" that is different from my/our actual price forecasts.
 b. No, I did not enter a separate "Price Deck". The prices I entered represent true estimates of future
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prices.
 c. Not applicable.
SP
By
y
nl
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Page 48
PART III: RESERVES ESTIMATION
13. Have you ever used a probabilistic approach in your evaluations?

 a. Yes
 b. No
If you answered "Yes" to Question 13, please continue to Question 14.
If you answered "No" to Question 13, please proceed to Question 18.
EE
14. For what percent of the reserves studies that you performed last year did you use a probabilistic
approach?
SP
_______________ %
By
15. The probabilistic approach was used to evaluate hydrocarbon reserves in the following regions:
y
(Select all that apply.)
nl
 a. North America
O
 b. Outside North America

n
(Please specify countries or regions if possible.)

tio
bu
tri
16. For the various stages of field or reservoir life, how often did you find it appropriate to use a
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probabilistic approach for reserves?

rD
(Please select one for each stage of field/reservoir life.)
All Some None of the Don't

Fo
Instances Instances Instances Know

a. Pre-drill:    
b. Early stages of production:    
c. Middle stages of production:    
d. Later stages of production:    
Page 49
17. What is the result when you use the probabilistic approach and then compare the reserves results
with deterministic methods?
 a. The probabilistic result was much more aggressive than the deterministic result.
(i.e., The 90% probability answer was much greater than the deterministic proved answer.)
 b. The probabilistic result was somewhat more aggressive than the deterministic result.
(i.e., The 90% probability answer was somewhat greater than the deterministic proved answer.)
 c. Mixed results, such that the probabilistic result was sometimes more aggressive than and
sometimes more conservative than the probabilistic result.
 d. The deterministic result was somewhat more aggressive than the probabilistic result.
(i.e., The deterministic proved answer was somewhat greater than the 90% probability answer.)
 e. The deterministic result was much more aggressive than the probabilistic result.
(i.e., The deterministic proved answer was much greater than the 90% probability answer.)
 f. I have never directly compared probabilistic and deterministic results, so I have no comment.
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SOCIETY OF PETROLEUM ENGINEERS
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PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
In 2007, a Petroleum Resources Management System sponsored by the Society of Petroleum Engineers and
By
jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists, and the
Society of Petroleum Evaluation Engineers was approved by the sponsoring organizations. This "Project-Based"
system seeks to classify resources based on a project's chance of commerciality as categorized by recoverable
y
uncertainty using the evaluator's forecast of future conditions. It applies to both conventional and unconventional
nl
reserves. The following questions address the level of awareness, and the stage of adoption of this system.
O
n
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18. Which of the following best describes your understanding of the SPE-PRMS?
 a. Aware of SPE-PRMS and have a good understanding of the system.
bu
 b. Aware of SPE-PRMS, but have only a basic understanding.

tri
 c. Aware of SPE-PRMS, but haven't reviewed it.

is
 d. Not aware of SPE-PRMS. Prior to this survey I hadn't heard of it.

rD
Fo
19. Which of the following best describes the present state of adoption of the SPE-PRMS by you or
within your organization?
 a. High degree of adoption. The SPE-PRMS is used to classify most of our resources and is used as
our primary basis for non-regulatory resource tracking.
 b. Moderate degree of adoption. Although our present reserves classification system is not SPE-
PRMS, we frequently use it as a tool to describe and characterize resources.
 c. Low degree of adoption. The SPE-PRMS is not used to any significant degree, but there is a plan
being developed to adopt all or a portion of it.
 d. Not adopting. The SPE-PRMS is not used to any significant degree; no plans are being made to
adopt it at present.
Page 50
20. The SPE-PRMS was intended to be a document that could be updated as the need arises.
Please provide your opinion on the need for such an update.
 a. Immediate changes needed
 b. Expect some changes will be needed in the next 2-5 years
 c Expect some changes will be needed in the next 6-10 years
 d. Do not think changes will be needed
21. Please list the changes that you believe should be addressed in the SPE-PRMS (referenced in
part a, b, or c of the previous question):
EE
U.S. SECURITIES AND EXCHANGE COMMISSION DISCLOSURE REQUIREMENTS
SP
On January 14, 2009, the U.S. Securities and Exchange Commission (SEC) published its Final Rule for the
Modernization of Oil and Gas Reporting. This document supersedes prior SEC guidelines. The new rules are
effective January 1, 2010, and are to be used for all year-end 2009 filings. The following questions address the
By
impact that such a rule change may have had in certain areas of reserves reporting.
y
nl
22. What impact do you feel the newly revised SEC rules have had and/or will have on your reserves
O
assessments?
(You will be given an opportunity in the next question to input other items that you feel have been impacted
n
substantially by the newly revised SEC rules).

tio
Impact
bu
No
Item High Medium Low Answer
tri
a. Expansion in offset spacing booking rules to include as proved,    

is
wells beyond one offset in conventional reservoirs

rD
b. Expansion in offset spacing booking rules to include as proved,    

wells beyond one offset in non-conventional (i.e., shale)
Fo
reservoirs
c. Limitations of proved undeveloped bookings based on a fixed    
forward-looking time (i.e., 5 year limitation)
d. Limitations of proved undeveloped bookings based on a need    
to de-book "stale" (i.e., more than 5 years old) undeveloped
locations
e. Use of technologies other than flow tests to prove up    
accumulations
f. Use of technologies to predict contacts for proved reserves    
(i.e., below lowest observed oil/gas)
g. Limitations on booking reserves across major faults    
h. Disclosure of reserves and future net revenues at alternate    
prices (i.e., sensitivities)
Page 51
23. Besides those items specified in the previous question, please indicate any other items that you
feel have been substantially impacted by the newly revised SEC rules:
24. Describe the technologies referenced in Question 22 part e (proving up accumulations in general):
25. Describe the technologies referenced in Question 22 part f (identifying contacts below lowest
observed):
EE
SP
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26. To the extent that sensitivities were performed in reserves disclosures, what was the primary
y
reason(s) for doing so:
nl
O
 a. To show the impact of higher prices on reserves and future revenues, relative to SEC prescribed
pricing
n
tio
 b. To show the impact of lower prices on reserves and future revenues, relative to SEC prescribed
pricing
bu
 c. To show the impact of potential changes in fiscal terms or economic parameters that may be
expected, but are not currently fixed and determinable
tri
 d. To show the impact of potential changes in production levels or reserves volumes, perhaps because
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of new or emerging technologies

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 e. To show an upside reserves case in lieu of publishing separate probable and/or possible reserves
disclosures
Fo
 f. Other, please specify:
27. To what degree do you believe that the newly revised SEC and SPE-PRMS definitions are
essentially the same definitions?
(Select one.)
1 2 3 4 5 
Little Virtually No
Similarity Identical Answer
Page 52
28. Given the properties that you have prepared SEC reserves estimates for so far under the newly
revised rules, in what instances have the probable and possible reserves been publicly disclosed?
All Some None of the Don't
Instances Instances Instances Know
a. Probable:    
b. Possible:    
29. If probable and/or possible reserves were not disclosed, what was the primary reason(s):
 a. Makes annual reconciliations too complicated and/or difficult
 b. Concern about public perception of future revisions in probable/possible categories
 c. Belief that the public will not perceive any additional company value with the disclosure
 d. Think it will add confusion to the public reserves disclosure of the proved reserves
EE
 e. The company does not inventory probable and/or possible reserves
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 f. Think it is not worth the effort
 g. Other, please specify:
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y
nl
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30. Do you prepare or work closely with estimates of acquisition price, fair market value, or loan value
n
for oil and gas properties?

tio
 a. Yes
bu
 b. No
tri
is
If you answered "Yes" to Question 30, please continue with Question 31.
rD
If you answered "No" to Question 30, please proceed to Question 65.

Fo
Page 53
PART IV: RECENT VALUATION EXPERIENCE
31. What is the total property value for which you or your company prepared estimates of acquisition
price, fair market value, or loan value over the past 12 months?
 a. Less than $1 million
 b. $1 million to $10 million
 c $10 million to $100 million
 d. $100 million to $250 million
 e. $250 million to $500 million
 f. $500 million to $1 billion
 g. Over $1 billion
EE
 h. No answer
SP
32. Of the properties valued, what percentage was in each the following areas?
By
___% a. United States of America
___% b. Canada y
___% c. Latin America/South America
nl
O
___% d. Europe
___% e. Africa
n
tio
___% f. Asia
___% g. Australia
bu
___% h. Other, please specify: ______________________________________________________

tri
is
33. Of the properties valued, which type of property was most frequently valued?
rD
 a. Operated working interest

Fo
 b. Non-operated working interest

 c Royalty interest
 d. Other / This information is not tracked
34. How would you rate the success of your company or clients in making acquisitions based on your
analysis and/or advice?
 a. Usually successful in acquiring properties
 b. Sometimes successful in acquiring properties
 c Seldom successful in acquiring properties
 d. Other
Page 54
If you or your company prepared estimates of acquisition price, fair market value, or loan value over the
past 12 months, please fill out either $/BOE or $/MCFE in the table below, whichever is more applicable
(both if you prefer).
35.-36. What is the range of values used in your transactions or calculated after your transactions?
35. 36.
$/BOE $/MCFE
a. Overall (without distinction to reserves category) ____ to ____ ____ to ____
b. For Proved Developed Producing reserves ____ to ____ ____ to ____
c. For Proved Non-Producing reserves ____ to ____ ____ to ____
d. For Proved Undeveloped reserves ____ to ____ ____ to ____
EE
e. For Probable reserves ____ to ____ ____ to ____
SP
f. For Possible reserves ____ to ____ ____ to ____
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37. How did you convert gas volumes to or from equivalent barrels of oil?
 a. Based on BTU equivalence
y
nl
 b. Based on price equivalence
O
n
38. If you use BTU equivalence to convert between gas and oil, what equivalence factor do you use?
tio
_________ MCF/BBL
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Page 55
PART V: VALUATION CRITERIA
DEFINITIONS
Note: In an attempt to provide consistency in the survey responses, definitions are provided. The Society of
Petroleum Evaluation Engineers (SPEE) does not endorse or adopt these definitions for any purpose and no
representations concerning the accuracy of the definitions are made by SPEE by the inclusion of definitions
herein.
39. What is your most commonly used method for determining value of oil and gas properties?
(Select only one.)
 a. Discounted Cash Flow
EE
 b. Multiple of Monthly Cash Flow
SP
 c Return on Investment
 d. $/BOE or $/MCFE
By
 e. P/I (Profit-To-Investment Ratio)
 f. Payout y
 g. Comparable sales
nl
 h. Other, please specify: _________________________________________________________
O
n
40. Other than method indicated in the previous question, identify additional methods that you utilize,
tio
if any.
bu

tri
 a. Discounted Cash Flow

is
 b. Multiple of Monthly Cash Flow

rD
 c Return on Investment
 d. $/BOE or $/MCFE
Fo
 e. P/I
 f. Payout
 g. Comparable sales
 h. Other, please specify: _________________________________________________________
Page 56
41. You provided answers in Part II that set forth your predictions of future oil and gas prices by year.
Is the pricing scenario that you presented in Part II the same pricing scenario that you usually
incorporate into your cash flow models for assessing acquisition price and value?
 a. Yes
 b. No, usually use a constant price model in determining acquisition price
 c No, usually use company policy for determining acquisition price or value
 d. No, usually use client defined criteria for determining acquisition price or value
 e. No, usually use probabilistic price distributions
 f. Other, please specify:
EE
42. Do the prices you incorporate into your cash flow models for assessing acquisition price and value
include the effect of hedging programs (e.g., collars, swaps, etc.)?
SP
 a. Yes
 b. No
By
43.
y
If you answered "Yes" to the previous question, how do you incorporate these hedge positions
nl
into your cash flow models?
O
 a. Use hedged pricing alone

n
 b. Use weighted average of hedged and bank pricing

tio
 c Use weighted average of hedged and internal client/company price forecast

bu
 d. Other, please specify:

tri
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Page 57
DEFINITIONS:
Risk Adjusted Discount Rate
The yield rate used when evaluating the acquisition price or value of an oil/gas asset. This factor should include a
consideration for the cost of capital, a profit or expected rate of return for the buyer and any risk/uncertainty that
the evaluator may choose to impute to the asset. Because the "Risk Adjusted Discount Rate" includes a profit for
the buyer, it is expected that it will be larger than the "Discount Rate". Some evaluators allow reserve risk to
influence their assessment of this discount rate; others do not, choosing instead to handle reserve risk exclusively
with "Reserve Adjustment Factors" (defined below).
Reserve Adjustment Factors
The factors used to downward adjust reserves for risk by reserve status and category, generally expressed as a
percentage. Some evaluators apply the factor to the estimated reserve volume (STB or MCF) in order to arrive at
a risk adjusted reserve volume before performing the cash flow analysis. Other evaluators perform the cash flow
analysis before risk adjusting the reserves and only thereafter apply the "Reserve Adjustment Factor" to the cash
flows ($) for each reserve category. NOTE FOR BANKING/ENERGY FINANCE RESPONDENTS: This is NOT
the advance rate, but the adjustment that will allow the same advance rate to be used for all categories of
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reserves.
There are questions below to explore the percentage of evaluators that use each approach to adjust acquisition
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price and value for reserve risk.
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44. How do you adjust your cash flow models to account for risk and uncertainty?
y
 a. Exclusively within the "Risk Adjusted Discount Rate" (see definition above)
nl
 b. Only use "Reserve Adjustment Factors" (see definition above)
O
 c. Use "Reserve Adjustment Factors", but then make an additional correction in the "Risk Adjusted
Discount Rate"
n
tio
bu
If you answered "a" (Risk Adjusted Discount Rate only) to Question 44, please proceed to Question 51.
tri
If you answered "b" or "c" (Reserve Adjustment Factors) to Question 44, please continue with
Question 45.
is
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Questions Regarding Reserve Adjustment Factors:
45.-47. If you use "Reserve Adjustment Factors", please provide the factors you use by reserve
category.
Producing Shut-in Behind Pipe Undeveloped

(%) (%) (%) (%)
45. Proved Reserves ____ ____ ____ ____
46. Probable Reserves ____ ____ ____ ____
47. Possible Reserves ____ ____ ____ ____
Page 58
48. How do you typically apply the "Reserve Adjustment Factors" you provided previously?
 a1. To reserve volumes (i.e., STB, MCF, etc.) before performing the cash flow analysis
 a2. To gross estimated revenues after multiplying estimated reserve volumes by expected prices, but
before subtracting future operating costs, capital investments, abandonment costs, and taxes
 b1. To estimated future net revenues after multiplying estimated reserve volumes by expected prices,
and after subtracting future operating costs, capital investments, abandonment costs, and taxes
 b2. To the discounted cash flow ($) of the unrisked reserves profile after performing a cash flow
analysis for each reserves category
 c. Other, please specify:
49. If you adjust volumes in order to apply the "Reserve Adjustment Factors", how do you adjust the
production in your cash flow analysis to reflect the risk-adjusted reserve volume?
EE
 a. Modify the reserve profile over time (i.e., leave the initial rate the same and increase the decline
rate)
SP
 b. Factor the entire reserve profile uniformly (i.e., lower the initial rate and leave the decline rate the
same)
By
 c. Change the number of projected wells
 d. Other, please specify: y
nl
O
n
50. How do you adjust expenses, capital investments, and abandonment costs when applying the
tio
"Reserve Adjustment Factors"?

bu
 a. Leave expenses, capital investments, and abandonment costs unchanged from the cash flow
projection before applying the "Reserve Adjustment Factors"
tri
 b. Use the same "Reserve Adjustment Factors" to adjust expenses, capital investments, and
abandonment costs
is
rD
 c. Use professional judgment to make new estimates for expenses, capital investments, and
abandonment costs
Fo
 d. No answer
If you answered "b" (Reserve Adjustment Factors only) to Question 44, please proceed to Question 54.
Questions Regarding Risk Adjusted Discount Rate:
51. If you normally use "Risk Adjusted Discount Rate" as part of your valuation practice, please
provide:
a. ______% The most typically used "Risk Adjusted Discount Rate"
b. ______% to ______% The range of "Risk Adjusted Discount Rates" used
Page 59
52. The component parts of your choice of "Risk Adjusted Discount Rate" are influenced by:
 a. Profit
 b. Reserve Risk (if you include reserve risk within the "Risk Adjusted Discount Rate")
 c. Price Uncertainty
 d. Expense Uncertainty
 e. Unidentified Reserve Potential
 f. Mechanical Risk
 g. Political/Regulatory Uncertainty
 h. Other, please specify:
EE
53. The "Risk Adjusted Discount Rate" is applied to cash flow projections that are estimated:
 a. Before federal income tax
SP
 b. After federal income tax
By
54. Regardless of whether you adjust the acquisition price or value for reserve risk using the "Risk
y
Adjusted Discount Rate", the "Reserve Adjustment Factors", or both, do you make a value
nl
adjustment for unquantified reserve potential?
O
 a. Always
n
 b. Most of the time

tio
 c. Sometimes
bu
 d. Never
tri
55. If you use "Risk Adjusted Discount Rate", do you decrease this rate to account for synergistic or
is
strategic effects of the potential acquisition with respect to other properties already owned?
rD
 a. Always
Fo
 b. Most of the time

 c. Sometimes
 d. Never
Page 60
56. Which statement best describes your approach to "profit" or "value creation" when acquiring oil
and gas properties?
 a. Rely solely on "Risk Adjusted Discount Rate" and/or "Reserve Adjustment Factors"
 b. Rely on a conservative view of production and reserves, but discount cash flows at the "Discount
Rate" (cost of capital)
 c. Rely on a subsequent sale of the asset in my valuation
 d. Rely on a conservative price forecast
 e. Use a combination of factors
 f. Other, please specify:
DEFINITION:
EE
Discount Rate
The "Discount Rate" for this section is the yield rate used to determine the present value of a future cash flow
SP
based solely on the cost of capital.
By
57. What is the "Discount Rate" that you use?
(Please use definition above.)
y
nl
_______________ %
O
n
58. The specified "Discount Rate" is calculated on the following basis:

tio
 a. Pre-tax
bu
 b. After-tax
tri
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Page 61
59. How did you arrive at the "Discount Rate" that you identified in your response to the previous
question?
(If the "Discount Rate" is typically provided by your client, try to reflect method used by your client.)
 a. Cost of equity
 b. Pre-tax cost of debt
 c. After-tax cost of debt
 d. Separately assess cost of debt and cost of equity and then blend those costs with an appropriate
weighting
 e. Based exclusively on the prime lending rate
 f. Based on the prime lending rate and adjusted based on judgment
 g. Based on financial indices other than the prime lending rate
 h. Based strictly on professional judgment
 i. Based on the results of past SPEE surveys
EE
 j. Provided by clients whose approaches are too divergent to summarize
 k. Other considerations, please specify:
SP
60.
By
If cost of debt is part of the "Discount Rate" calculation, please specify if the cost of debt included
y
in the calculation is on a:
nl
(Leave blank if not applicable.)
O
 a. Pre-tax basis
n
 b. After-tax basis
tio
bu
61. If the "Discount Rate" calculation is based on financial indices other than the prime lending rate,
please specify the indices:
tri
(Leave blank if not applicable.)

is
rD
Fo
DEFINITION:
Borrowing Rate
Cost of debt component of company's/client's overall cost of capital.
62. What is the average "Borrowing Rate" that you use?

(Please use definition above.) (This question can be useful in conjunction with the discount rate response in
Question 57 to identify, on average, how much of a company's/client's cost of capital is based on cost of
debt.)
_______________ %
Page 62
63. In what percent of the transactions in which you were involved or evaluated did the acquiring
company use debt as a means of financing acquisitions?
_______________ %
64. Where a debt component was incorporated into the financing of acquisitions in which you were
involved last year, what were the primary sources of debt financing used last year?
 a. Commercial bank debt
 b. Mezzanine financing
 c. Seller financing
 d. Equity partnership
 e. Other, please specify: __________________________________________________________
EE
SP
By
y
nl
O
n
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bu
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Page 63
PART VI: GENERAL QUESTIONS
65. How many minutes did it take to complete this survey?
__________ minutes
66. What might we do to improve this survey? Please also comment on any questions that you
recommend adding or deleting.
EE
SP
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To return this survey:
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If you have completed the survey digitally within this PDF document, please select the "Submit Form"
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button above to initiate the return email process automatically. If you have any difficulty with this,
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simply save the completed PDF survey form and then email it to SPEEsurvey@NSAI-petro.com.
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If you have completed a hard copy version, you may either fax the completed survey to 1-214-969-5411
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or send to the address below via postal mail.

bu
SPEE Survey – Attn: Rick Krenek

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Netherland, Sewell & Associates, Inc.

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1601 Elm Street, Suite 4500

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Dallas, Texas 75201

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Separate instructions should be emailed to you regarding submission of the survey via the on-line
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Contact B. K. Buongiorno at the SPEE Office 1-713-651-1639 for information about survey results.
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2010 SPEE Survey

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SOCIETY OF PETROLEUM EVALUATION ENGINEERS

SOCIETY OF PETROLEUM EVALUATION ENGINEERS

5535 MEMORIAL DRIVE, SUITE F654

Re: Twenty-Ninth Annual

Evaluation Parameters Survey Committee

Richard F. (Rick) Krenek II

Breakdown of Survey Responses 3

Price and Cost Projections 5

Valuation Methodologies and Criteria 23

Recent Transaction Information 23

Valuation Pricing Criteria 24

Preferred Method for Determining Values 25

Risk Adjusted Discount Rate (RADR) 30

Figure 26: Borrowing Rate – Cost of Debt 40

Table 1: Respondents' Company Size 3

Table 3: Average Natural Gas Price Projections by Affiliation (US$) 7

Table 5: Drilling Cost Inflation Projection (%) 10

Table 6: Operating Cost Inflation Projection (%) 10

Table 9: Time Frame for PRMS Changes 17

Affiliation of Survey Respondents

0-5 Employees 36%

31-100 Employees 14%

Over 100 Employees 21%

Totals may not add because of rounding.

Oil Price Projections by Affiliation

Gas Price Projections and Escalations

Natural Gas Price Projections by Affiliation

Average Natural Gas Price Projections by Affiliation (US$)

Composite Producer Consultant Finance Other

2010 4.55 4.51 4.67 4.24 4.59

2012 5.38 5.40 5.41 5.28 5.29

Comparison of Historical SPEE Survey Price Projections

was US$4.11 per MMBTU.

Basis for Price Projections

Projection of Operating Costs, Drilling Costs, and Inflation

Year Average Median Standard Dev.

Drilling Cost Inflation Projection (%)

Year Average Median Standard Dev.

2012 2.49 2.50 2.33

2014 2.64 3.00 2.33

2016 2.51 2.95 2.24

2018 2.54 3.00 2.34

Year Average Median Standard Dev.

Average Operating Cost, Drilling Cost, and Inflation Projections

Probabilistic Reserves Evaluations

category deterministic guidelines and commercial uncertainties.

Frequency of Use of the Probabilistic Approach

Frequency of Probabilistic Method Use in Various Stages of Production

The deterministic result was much more aggressive than the

I have never directly compared probabilistic and deterministic

results, so I have no comment. 25%

Totals may not add because of rounding.

The Petroleum Resources Management System (PRMS)

those of the PRMS, for public reporting.

Awareness Level Degree of Adoption of PRMS

High Moderate Low Not

Aware and have a good understanding 23% 12% 3% 3% 40%

regarding well spacing in resource plays and unconventional reservoirs.

Revised Disclosure Requirements of the

Limitations of PUD bookings based on

book older undeveloped locations (i.e.

those older than 5 years) 14 38 70 11% 31% 57%

flow tests to prove up reserves 18 45 48 16% 41% 43%

contact observation to predict contacts