Petroleum Resources Management System

The Petroleum Resources Management System is designed to provide a framework for the
classification of oil and gas volumes which a company may have associated with its portfolio of
assets. It is not specific to any particular geographic location and can be applied to both
conventional and unconventional reserves and resources anywhere in the world, in any fiscal
regime. Petroleum Resource Management system help the petroleum industry assesses and
quantifies the major driver of value for exploration and production companies – oil and natural gas
reserves and resources. Clear terms and definitions that result in reliable and easily comparable
reserves estimations are essential for investors, regulators, governments and consumers not only in
assessing a petroleum company’s current and future value, but in determining the outlook for the
world’s energy supply.

PRMS is a fully integrated system that provides the basis for classification and categorization of all
petroleum reserves and resources. Although the system encompasses the entire resource base, it is
focused primarily on estimated recoverable sales quantities. Because no petroleum quantities can
be recovered and sold without the installation of (or access to) the appropriate production,
processing, and transportation facilities, PRMS is based on an explicit distinction between -
(1) The development project that has been (or will be) implemented to recover petroleum from one or
more accumulations and, in particular, the chance of commerciality of that project; and

(2) The range of uncertainty in the petroleum quantities that are forecast to be produced and sold in
the future from that development project. . A petroleum resources management system provides a
consistent approach to estimating petroleum quantities, evaluating development projects, and
presenting results within a comprehensive classification framework

This two-axis PRMS system is illustrated in Figure

Fundamentals of the Petroleum Resources Management System (PRMS)

Oil and gas reserves and resources are defined as volumes that will be commercially recovered in
the future. Unlike the inventory of a manufacturing company, reserves are physically located in
reservoirs deep underground and cannot be visually inspected or counted, but rather are estimates
based on the evaluation of data that provides evidence of the amount of oil and gas present. There
is no definitive answer until the end of a reservoir's producing life. All reserve estimates involve
some degree of uncertainty. The estimation of reserves volumes is generally performed by highly-
skilled individuals who use their experience and professional judgment in the calculation of those
volumes. To take into account this uncertainty, the PRMS incorporates a central framework that
categorizes reserves and resources according to the level of certainty associated with their
recoverable volumes (horizontal axis in the figure), and classifies them according to the potential
for reaching commercial producing status (vertical axis).

When applying PRMS, technical specialists must determine a specific project that will be used to
recover the reserves and resources and determine the chance that it will be commercially
successful, then must estimate the volume expected to be recovered from the “project.” It is
important to remember when applying the PRMS that, as shown above, reserves are a subset of
resources.

Each project is classified according to its maturity or status (broadly corresponding to its chance of
commerciality) using three main classes, with the option to subdivide further using subclasses. The
three classes are Reserves, Contingent Resources, and Prospective Resources. Separately, the range
of uncertainty in the estimated recoverable sales quantities from that specific project is categorized
based on the principle of capturing at least three estimates of the potential outcome: low, best, and
high estimates.
The “Range of Uncertainty” reflects a range of estimated quantities potentially recoverable from an
accumulation by a project, while the vertical axis represents the “Chance of Commerciality, that is,
the chance that the project that will be developed and reach commercial producing status.

The following definitions apply to the major subdivisions within the resources classification:

TOTAL PETROLEUM INITIALLY-IN-PLACE is that quantity of petroleum that is estimated to exist

originally in naturally occurring accumulations. It includes that quantity of petroleum that is
estimated, as of a given date, to be contained in known accumulations prior to production plus
those estimated quantities in accumulations yet to be discovered (equivalent to “total resources”).

DISCOVERED PETROLEUM INITIALLY-IN-PLACE is that quantity of petroleum that is estimated,

as of a given date, to be contained in known accumulations prior to production.

PRODUCTION is the cumulative quantity of petroleum that has been recovered at a given date.
While all recoverable resources are estimated and production is measured in terms of the sales
product specifications, raw production (sales plus non-sales) quantities are also measured and
required to support engineering analyses based on reservoir voidage. This is primarily output from
operations that has already been produced for use by consumers.

Differences in Classes (Vertical Axis) - Chance of Commerciality

Petroleum resources are the estimated quantities of hydrocarbons naturally occurring on or

within the Earth’scrust. Resource assessments estimate total quantities in known and yet-to-be
discovered accumulations; resources evaluations are focused on those quantities that can
potentially be recovered and marketed by commercial projects.

The four major recoverable resources classes defined by the PRMS are production, reserves,
contingent resources, and prospective resources. There is also a distinct class for unrecoverable
petroleum. These classes are shown on the vertical axis of the PRMS framework.

Reserves represent that part of resources which are commercially recoverable and have been
justified for development, while contingent and prospective resources are less certain because
some significant commercial or technical hurdle must be overcome prior to there being confidence
in the eventual production of the volumes.

RESERVES are those quantities of petroleum anticipated to be commercially recoverable by

application of development projects to known accumulations from a given date forward under
defined conditions. Reserves must further satisfy four criteria: they must be discovered,
recoverable, commercial, and remaining (as of the evaluation date) based on the development
project(s) applied.

Contingent resources are less certain than reserves. These are resources that are potentially
recoverable but not yet considered mature enough for commercial development due to
technological or business hurdles. For contingent resources to move into the reserves category, the
key conditions, or contingencies, that prevented commercial development must be clarified and
removed. As an example, all required internal and external approvals should be in place or
determined to be forthcoming, including environmental and governmental approvals. There also
must be evidence of firm intention by a company’s management to proceed with development
within a reasonable time frame (typically 5 years, though it could be longer).

CONTINGENT RESOURCES are those quantities of petroleum estimated, as of a given date,

to be potentially recoverable from known accumulations, but the applied project(s) are not
yet considered mature enough for commercial development due to one or more
contingencies. Contingent Resources may include, for example, projects for which there are
currently no viable markets, or where commercial recovery is dependent on technology
under development, or where evaluation of the accumulation is insufficient to clearly assess
commerciality.

Prospective resources are estimated volumes associated with undiscovered accumulations.

Prospective resources are those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from undiscovered accumulations by application of future development
projects. Prospective Resources have both an associated chance of discovery and a chance of
development. These represent quantities of petroleum which are estimated, as of a given date; to be
potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but
which have not yet been drilled. This class represents a higher risk than contingent resources since
the risk of discovery is also added. For prospective resources to become classified as contingent
resources, hydrocarbons must be discovered, the accumulations must be further evaluated and an
estimate of quantities that would be recoverable under appropriate development projects
prepared.

Unrecoverable Some petroleum will be classified as “unrecoverable” at this point in time, not
being producible by any projects that the company may plan or foresee. While a portion of these
quantities may become recoverable in the future as commercial circumstances change or
technological developments occur, some of the remaining portion may never be recovered due to
physical or chemical constraints in the reservoir. The volumes classified using the system represent
the analysis of the day, and should be regularly reviewed and updated, as necessary, to reflect
changing conditions.

A project may have recoverable quantities in several resource classes simultaneously. As barriers to
development are removed, some resources may move to a higher classification. One of the primary
distinctions between resources and reserves is that while resources are technically recoverable,
they may not be commercially viable. Reserves are always commercially viable and there is intent
development them.

Determination of Discovery Status

A discovery is one petroleum accumulation, or several petroleum accumulations collectively, for

which one or several exploratory wells have established through testing, sampling, and/or logging
the existence of a significant quantity of potentially moveable hydrocarbons.

In this context, “significant” implies that there is evidence of a sufficient quantity of petroleum to
justify estimating the in-place volume demonstrated by the well(s) and for evaluating the potential
for economic recovery. Estimated recoverable quantities within such a discovered (known)
accumulation(s) shall initially be classified as Contingent Resources pending definition of projects
with sufficient chance of commercial development to reclassify all, or a portion, as Reserves. Where
in-place hydrocarbons are identified but are not considered currently recoverable, such quantities
may be classified as Discovered Unrecoverable, if considered appropriate for resource management
purposes; a portion of these quantities may become recoverable resources in the future as
commercial circumstances change or technological developments occur.

Determination of Commerciality

Discovered recoverable volumes (Contingent Resources) may be considered commercially

producible, and thus Reserves, if the entity claiming commerciality has demonstrated firm intention
to proceed with development and such intention is based upon all of the following
criteria:
• Evidence to support a reasonable timetable for development.
• A reasonable assessment of the future economics of such development projects meeting defined
investment and operating criteria
• A reasonable expectation that there will be a market for all or at least the expected sales
quantities of production required to justify development.
• Evidence that the necessary production and transportation facilities are available or can be made
available:
• Evidence that legal, contractual, environmental and other social and economic concerns will
allow for the actual implementation of the recovery project being evaluated.
To be included in the Reserves class, a project must be sufficiently defined to establish its
commercial viability. There must be a reasonable expectation that all required internal and external
approvals will be forthcoming, and there is evidence of firm intention to proceed with development
within a reasonable time frame. A reasonable time frame for the initiation of development depends
on the specific circumstances and varies according to the scope of the project. While 5 years is
recommended as a benchmark, a longer time frame could be applied where, for example,
development of economic projects are deferred at the option of the producer for, among other
things, market-related reasons, or to meet contractual or strategic objectives. In all cases, the
justification for classification as Reserves should be clearly documented.

To be included in the Reserves class, there must be a high confidence in the commercial
producibility of the reservoir as supported by actual production or formation tests. In certain cases,
Reserves may be assigned on the basis of well logs and/or core analysis that indicate that the
subject reservoir is hydrocarbon-bearing and is analogous to reservoirs in the same area that are
producing or have demonstrated the ability to produce on formation tests.

Differences in Categories (Horizontal Axis) -Range of Uncertainty

The horizontal axis in the Resources Classification defines the range of uncertainty in estimates of
the quantities of recoverable, or potentially recoverable, petroleum associated with a project.
Within any resource class other than production, volumes are placed into different categories based
on their certainty of eventually coming out of the ground. Decisions to upgrade volumes to any
category within a class are generally based on the technical certainty of recovering the volumes.

The range of uncertainty of the recoverable and/or potentially recoverable volumes may be
represented by either deterministic scenarios or by a probability distribution.
When using the deterministic scenario method, typically there should also be low, best, and high
estimates, where such estimates are based on qualitative assessments of relative uncertainty using
consistent interpretation guidelines. Under the deterministic incremental (risk-based) approach,
quantities at each level of uncertainty are estimated discretely and separately.

When the range of uncertainty is represented by a probability distribution, a low, best, and high
estimate shall be provided such that:
• There should be at least a 90% probability (P90) that the quantities actually recovered will equal
or exceed the low estimate.
• There should be at least a 50% probability (P50) that the quantities actually recovered will equal
or exceed the best estimate.
• There should be at least a 10% probability (P10) that the quantities actually recovered will equal
or exceed the high estimate.

These same approaches to describing uncertainty is applied to Reserves, Contingent Resources, and
Prospective Resources. While there may be significant risk that sub-commercial and undiscovered
accumulations will not achieve commercial production, it useful to consider the range of potentially
recoverable quantities independently of such a risk or consideration of the resource class to which
the quantities will be assigned.

For Reserves, the general cumulative terms low/best/high estimates are denoted as 1P/2P/3P,
respectively. The associated incremental quantities are termed Proved, Probable and Possible.
Reserves are a subset of, and must be viewed within context of, the complete resources
classification system. While the categorization criteria are proposed specifically for Reserves, in
most cases, they can be equally applied to Contingent and Prospective Resources conditional upon
their satisfying the criteria for discovery and/or development.

The highest valued category of reserves is “proved” reserves. Proved reserves have a “reasonable
certainty” of being recovered, which means a high degree of confidence that the volumes will be
recovered. To be clear, reserves must have all commercial aspects addressed. It is technical issues
which separate proved from unproved categories.

“Probable” and “possible” reserves are lower categories of reserves, commonly combined and
referred to as “unproved reserves,” with decreasing levels of technical certainty.
Probable reserves are volumes that are defined as “less likely to be recovered as proved, but more
certain to be recovered than Possible Reserves”.
Possible reserves are reserves which analysis of geological and engineering data suggests are less
likely to be recoverable than probable reserves.

The term 1P is frequently used to denote proved reserves, 2P is the sum of proved and probable
reserves and 3P the sum of proved, probable and possible reserves. The best estimate of recovery
from committed projects is generally considered to be the 2P sum of proved and probable reserves.
Note that these volumes only refer to projects that are currently justified for or already in
development. Total value of any resource base must include an assessment of the contingent and
prospective resources as well as reserves.

In order for volumes to move from one category to the next, the technical issues which cause them
to be placed in less certain categories must be resolved. In the majority of cases, this requires that
additional data must be obtained before any greater certainty can be recognized. This may include,
among other things, the drilling of additional wells, the monitoring of current production to better
understand performance or the implementation of a pilot to have greater confidence in the volumes
that full scale development projects may eventually produce.
For Contingent Resources, the general cumulative terms low/best/high estimates are denoted as
1C/2C/3C respectively. For Prospective Resources, the general cumulative terms low/best/high
estimates still apply. No specific terms are defined for incremental quantities within Contingent and
Prospective Resources.

The following summarizes the definitions for each Reserves category in terms of both the
deterministic incremental approach and scenario approach and also provides the probability
criteria if probabilistic methods are applied.

• Proved Reserves are those quantities of petroleum, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be commercially recoverable,
from a given date forward, from known reservoirs and under defined economic conditions,
operating methods, and government regulations. If deterministic methods are used, the term
reasonable certainty is intended to express a high degree of confidence that the quantities will
be recovered. If probabilistic methods are used, there should be at least a 90% probability that
the quantities actually recovered will equal or exceed the estimate.

• Probable Reserves are those additional Reserves which analysis of geoscience and
engineering data indicate are less likely to be recovered than Proved Reserves but more
certain to be recovered than Possible Reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of the estimated Proved plus
Probable Reserves (2P). In this context, when probabilistic methods are used, there should be
at least a 50% probability that the actual quantities recovered will equal or exceed the 2P
estimate.

• Possible Reserves are those additional reserves which analysis of geoscience and engineering
data suggest are less likely to be recoverable than Probable Reserves. The total quantities
ultimately recovered from the project have a low probability to exceed the sum of Proved plus
Probable plus Possible (3P) Reserves, which is equivalent to the high estimate scenario. In this
context, when probabilistic methods are used, there should be at least a 10% probability that
the actual quantities recovered will equal or exceed the 3P estimate.

Project Maturity Sub-Classes

As illustrated in Figure, development projects (and their associated recoverable quantities) may be
sub-classified according to project maturity levels and the associated actions (business decisions)
required to move a project toward commercial production. This approach supports managing
portfolios of opportunities at various stages of exploration and development and may be
supplemented by associated quantitative estimates of chance of commerciality. The boundaries
between different levels of project maturity may be referred to as “decision gates.”

Decisions within the Reserves class are based on those actions that progress a project through final
approvals to implementation and initiation of production and product sales. For Contingent
Resources, supporting analysis should focus on gathering data and performing analyses to clarify
and then mitigate those key conditions, or contingencies that prevent commercial development.

For Prospective Resources, these potential accumulations are evaluated according to their chance
of discovery and, assuming a discovery, the estimated quantities that would be recoverable under
appropriate development projects. The decision at each phase is to undertake further data
acquisition and/or studies designed to move the project to a level of technical and commercial
maturity where a decision can be made to proceed with exploration drilling. Evaluators may adopt
alternative sub-classes and project maturity modifiers, but the concept of increasing chance of
commerciality should be a key enabler in applying the overall classification system and supporting
portfolio management

 On Production is self-evident in that the project must be producing and selling petroleum to
market as at the effective date of the evaluation. Although implementation of the project may
not be 100% complete at that date, and hence some of the reserves may still be Undeveloped.
The full project must have all necessary approvals and contracts in place, and capital funds
committed. If a part of the development plan is still subject to approval and/or commitment of
funds, this part should be classified as a separate project in the appropriate subclass.

 Approved for Development requires that all approvals/contracts are in place, and capital
funds have been committed. Construction and installation of project facilities should be
underway or due to start imminently. Only a completely unforeseeable change in circumstances
 that is beyond the control of the developers would be an acceptable reason for failure of the
project to be developed within a reasonable time frame.

 Projects normally would not be expected to be classified as Justified for Development for very
long. Essentially, it covers the period between (a) the operator and its partners agreeing that
the project is commercially viable and deciding to proceed with development on the basis of an
agreed development plan (i.e., there is a “firm intent”), and (b) the point at which all approvals
and contracts are in place (particularly regulatory approval of the development plan, where
relevant) and a “final investment decision” has been made by the developers to commit the
necessary capital funds. In PRMS, the recommended benchmark is that development would be
expected to be initiated within 5 years of assignment to this subclass

 Development Pending is limited to those projects that are actively subject to project-specific
technical activities, such as appraisal drilling or detailed evaluation that is designed to confirm
commerciality and/or to determine the optimum development scenario. In addition, it may
include projects that have nontechnical contingencies, provided these contingencies are
currently being actively pursued by the developers and are expected to be resolved positively
within a reasonable time frame. Such projects would be expected to have a high probability of
becoming a commercial development (i.e., a high chance of commerciality).

 Development Unclarified or On Hold comprises two situations. Projects that are classified as
On Hold would generally be where a project is considered to have at least a reasonable chance
of commerciality, but where there are major nontechnical contingencies (e.g., environmental
issues) that need to be resolved before the project can move toward development. The primary
difference between Development Pending and On Hold is that in the former case, the only
significant contingencies are ones that can be, and are being, directly influenced by the
developers (e.g., through negotiations), whereas in the latter case, the primary contingencies
are subject to the decisions of others over which the developers have little or no direct
influence and both the outcome and the timing of those decisions is subject to significant
uncertainty. Projects are considered to be Unclarified if they are still under evaluation (e.g., a
recent discovery) or require significant further appraisal to clarify the potential for
development, and where the contingencies have yet to be fully defined. In such cases, the
chance of commerciality may be difficult to assess with any confidence.

 Where a technically viable project has been assessed as being of insufficient potential to
warrant any further appraisal activities or any direct efforts to remove commercial
contingencies, it should be classified as Development not Viable. Projects in this subclass
would be expected to have a low chance of commerciality.

It is important to note that while the aim is always to move projects “up the ladder” toward
higher levels of maturity, and eventually to production, a change in circumstances
(disappointing well results, change in fiscal regime, etc.) can lead to projects being
“downgraded” to a lower subclass.

One area of possible confusion is the distinction between Development not Viable and
Unrecoverable. A key goal of portfolio management should be to identify all possible
incremental development options for a reservoir; it is strongly recommended that all
technically feasible projects that could be applied to a reservoir are identified, even though
some may not be economically viable at the time. Such an approach highlights the extent to
which identified incremental development projects would achieve a level of recovery efficiency
 that is at least comparable to analogous reservoirs. Or, looking at it from the other direction, if
analogous reservoirs are achieving levels of recovery efficiency significantly better than the
reservoir under consideration, it is possible that there are development options that have been
overlooked.

A project would be classified as Development not Viable if it is not seen as having sufficient
potential for eventual commercial development, at the time of reporting, to warrant further
appraisal. However, the theoretically recoverable quantities are recorded so that the potential
development opportunity will be recognized in the event of a major change in technology
and/or commercial conditions.

Quantities should only be classified as Unrecoverable if no technically feasible projects have

been identified that could lead to the recovery of any of these quantities. A portion of
Unrecoverable quantities may become recoverable in the future due to the development of new
technology, for example; the remaining portion may never be recovered due to
physical/chemical constraints represented by subsurface interaction of fluids and reservoir
rock

Deterministic and Probabilistic Methods

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.

In the probabilistic method, the estimator defines a distribution representing the full range of
possible values 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 quantities .This approach is most often applied to volumetric
resource calculations in the early phases of an exploitation and development projects. The
Resources Categorization guidelines include criteria that provide specific limits to parameters
associated with each category. Moreover, the resource analysis must consider commercial
uncertainties. Accordingly, when probabilistic methods are used, constraints on parameters may be
required to ensure that results are not outside the range imposed by the category deterministic
guidelines and commercial uncertainties.

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 probabilities. Nevertheless, the ranges of the probability guidelines
established for the probabilistic method 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 that results of either method are reasonable.