Reservas: Impacto de los

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Reservas Impacto de los últimos cambios en las
definiciones

• Herman G. Acuña
• Managing International V.P.
• Ryder Scott Company
• (Herman_Acuna_at_RyderScott.com)

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Agenda

• Introductory Comments
• 2007 SPE/WPC/AAPG/SPEE PRMS
• 2009 SEC Rules Modernization
• Side-by-Side Comparison of SPE and SEC Definitions

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The Definitions
2009 SECs Modernization Of Oil and Gas
Reporting
2007 SPE PRMS
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WHY IS A RESERVES DEFINITION NEEDED?

• Most of the parameters that define the reserves
  of a Reservoir cannot be measured directly, and
  must be determined indirectly through geologic
  and reservoir engineering analysis and
  interpretations.
• As a result, the estimates of oil and gas
  reserves have an intrinsic uncertainty.
• The Definitions of reserves are designed to
  promote uniformity and a standard measurement of
  the assets, providing a structure to quantify
  risk and uncertainty through its categorization.

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Audiences

• Tolerance to Uncertainty
• Access to upside
• Exposure to downside
• Economic indicators

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• The term reserves is generally applied to the
  discovered quantities of petroleum anticipated to
  be commercially recoverable from known
  accumulations from a given date forward under
  defined conditions.
• The term resources is generally applied to all
  quantities of petroleum (recoverable and
  unrecoverable) naturally occurring on or within
  the Earths crust, discovered and undiscovered,
  plus those quantities already produced.

Ref. Sections 2.1.1, 2.1.2 2.1.3 PRMS
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Project Maturity Sub-Classes Play

• Project associated with prospective trend
• Requires additional data acquisition and/or
  evaluation
• Activities focused on identifying leads or
  prospects for more detailed analysis
• Chance of discovery, range of potential recovery
  under hypothetical development scenarios

Let's keep looking!
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Project Maturity Sub-Classes Lead

• Poorly defined potential accumulation
• Requires more data acquisition or evaluation
• Activities include further analysis to confirm
  whether or not the lead can be mature into a
  prospect
• Chance of discovery, range of potential recovery
  under feasible development scenarios

Is that a target?
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Project Maturity Sub-Classes Prospect

• Potential accumulation sufficiently defined as a
  viable drilling target
• Project focus on assessing chance of discovery
• Evaluating range of potential recoverable
  quantities under commercial program

Move the Rig Boys!
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Project Maturity Sub-Classes Development Not
Viable

• Discovery with limited production potential
• No current plans to appraise
• Project not seen as having commercial potential
  for eventual development
• Keep theoretical recoverable quantities in the
  event of major technology or commercial
  conditions
• Project decision gate not to undertake any
  further actions for the foreseeable future

Wish had not spent that money!
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Company Prospector after receiving Development
not Viable status on pet project
At least I kept the dog!
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Project Maturity Sub-Classes Development
Unclarified or on Hold

• Discovery with activities on hold and commercial
  development may be significantly delayed
• Project seen as having eventual commercial
  development potential
• Pending removal of significant contingencies
• Substantial further appraisal is necessary to
  clarify potential
• Project decision gate proceed or suspend
  appraisal with temporarily suspension outcome

Tempting, let's wait spend somewhere else.
?
?
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Project Maturity Sub-Classes Development Pending

• Discovery with enough hydrocarbons to justify
  ongoing activities to confirm commercial
  development in the foreseeable future
• Reasonable potential for development subject to
  confirmation with ongoing data acquisition and
  investigations
• Critical contingencies identified and reasonable
  expectations to resolve them
• Disappointing appraisal may lead to downgrading
  to On-hold or Not Viable
• Project decision gate is decision to move forward
  with appraisal and confirmation

Actively Appraising
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Project Maturity Sub-Classes Justified for
Development

• Projects justified economically based on
  reasonable commercial forecast
• Reasonable expectation that all approvals will be
  obtained
• Development plan with sufficient detail to
  support claim of commerciality
• Reasonable expectations to obtain regulatory
  approvals and sales contracts
• Project decision gate is notification of project
  maturity to proceed with development at that
  point in time

Will Spend Money
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• Company prospector after receiving Justified for
  Development status on pet project.

I knew it all along, those were reserves not
resources!
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Project Maturity Sub-Classes Approved for
Development

• All approvals obtained, capital funds committed
  project is underway
• Certainty that project is going forward
• No outstanding approvals or sales contracts
• Committed budget should be part of the approved
  budget
• Project decision gate is to start investments and
  construction

Spending Money
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Project Maturity Sub-Classes On Production

• Project is on production and selling hydrocarbons
• Receiving income versus simply a completed
  project
• Project chance of commerciality is 100
• Project decision gate is the decision to initiate
  commercial production

Making Money
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Securities and Exchange Commission (SEC)Reserves
Definitions
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SEC Mission and Objectives

• SEC administers federal securities laws and issue
  rules and regulations to provide protection for
  investors and ensure the securities markets are
  fair and honest.
• Its main objective is to protect shareholders by
  providing a homogeneous base for comparison among
  the various Companies.
• SEC promotes the full and effective disclosure to
  the investing public.
• SEC does not conduct merit review does not
  guarantee the value or merit of an investment.
• SEC cannot prohibit the sale of securities of
  questionable value. The investor must make the
  ultimate judgment of the worth of any securities
  offered for sale.

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2009 SEC Reserves Definitions Modernization

• Now covers Proved, Probable and Possible
  Reserves, previously only Proved Reserves
• Use of 12 month average price for the first day
  of each month versus fiscal year end price
• Allows booking of non-conventional hydrocarbons
• Ability to use new technology if reliable and
  repeatable.
• Certainty criteria for PUDs now use reasonable
  certainty criteria.
• Analogous reservoir properties must be in the
  aggregate be no more favorable than the reservoir
  of interest.
• Allows for Deterministic and Probabilistic
  methods
• It does not reflect the global position of the
  Company in the area of Resources

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• Side By Side Comparison of
• U.S. SEC vs. SPE-PRMS
• Reserves Definitions

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Classify by Chance of Commerciality
Categorize estimates based on Uncertainty of
sales volumes
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Definition of Reserves

• SEC 210.4-10(a)(26)
• Reserves are estimated remaining quantities of
  oil and gas and related substances anticipated to
  be economically producible, as of a given date,
  by application of development projects to known
  accumulations. In addition, there must exist, or
  there must be a reasonable expectation that there
  will exist, the legal right to produce or a
  revenue interest in the production, installed
  means of delivering oil and gas or related
  substances to market, and all permits and
  financing required to implement the project.

SPE-PRMS Appendix A 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 a given date) based on the
development project(s) applied.
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Economically Producible vs. Commercially
Recoverable
SPE-PRMS 3.1, 3.1.1 Commercial Evaluations Resou
rces evaluations are based on estimates of future
production and the associated cash flow schedules
for each development project. While each
organization may define specific investment
criteria, a project is generally considered to be
economic if its best estimate case has a
positive net present value under the
organizations standard discount rate, or if at
least has a positive undiscounted cash flow.

• SEC 210.4-10(a)(10)
• The term economically producible, as it relates
  to a resource, means a resource which generates
  revenue that exceeds, or is reasonably expected
  to exceed, the costs of the operation. The value
  of the products that generate revenue shall be
  determined at the terminal point of oil and gas
  producing activities as defined in paragraph
  (a)(16) of this section.

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Existing Economic Conditions vs. Defined Economic
Conditions

• SEC 210.4-10(a)(22)(v)
• Existing economic conditions include prices and
  costs at which economic producibility from a
  reservoir is to be determined. The price shall be
  the average price during the 12-month period
  prior to the ending date of the period covered by
  the report, determined as an unweighted
  arithmetic average of the first-day-of-the-month
  price for each month within such period, unless
  prices are defined by contractual arrangements,
  excluding escalations based upon future
  conditions.

SPE-PRMS 3.1.2 The economic evaluation
underlying the investment decision is based on
the entitys reasonable forecast of future
conditions, including costs and prices, which
will exist during the life of the project
(forecast case). Such forecasts are based on
projected changes to current conditions SPE
defines current conditions as the average of
those existing during the previous 12 months.
Alternative economic scenarios are considered in
the decision process and, in some cases, to
supplement reporting requirements. Evaluators may
examine a case in which current conditions are
held constant (no inflation or deflation)
throughout the project life (constant case).
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Definition of Proved Reserves

• SEC 210.4-10(a)(22)
• Proved oil and gas reserves are those quantities
  of oil and gas, which, by analysis of geoscience
  and engineering data, can be estimated with
  reasonable certainty to be economically
  produciblefrom a given date forward, from known
  reservoirs, and under existing economic
  conditions, operating methods, and government
  regulationsprior to the time at which contracts
  providing the right to operate expire, unless
  evidence indicates that renewal is reasonably
  certain, regardless of whether deterministic or
  probabilistic methods are used for the
  estimation. The project to extract the
  hydrocarbons must have commenced or the operator
  must be reasonably certain that it will commence
  the project within a reasonable time.

SPE-PRMS Appendix A 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.
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Reasonable Certainty For Proved Reserves

• SEC 210.4-10(a)(22)
• If deterministic methods are used, reasonable
  certainty means 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. A high degree of confidence exists if
  the quantity is much more likely to be achieved
  than not, and, as changes due to increased
  availability of geoscience (geological,
  geophysical, and geochemical), engineering, and
  economic data are made to estimated ultimate
  recovery (EUR) with time, reasonably certain EUR
  is much more likely to increase or remain
  constant than to decrease.

SPE-PRMS Appendix A 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.
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Discounted Future Net Revenue or Net Present Value

• FASB Topic 932
• This amount shall be derived from using a
  discount rate of 10 percent a year to reflect the
  timing of the future net cash flows relating to
  proved oil and gas reserves.

SPE-PRMS 3.1.1 When the cash flows are
discounted according to a defined discount rate
and time period, the summation of the discounted
cash flows is termed net present value (NPV) of
the project. The calculation shall reflect 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.
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Proved Reserves and Expiration of Existing
Contracts

• SEC 210.4-10(a)(22)
• prior to the time at which contracts providing
  the right to operate expire, unless evidence
  indicates that renewal is reasonably certain

SPE-PRMS 3.1.1 3.3.3 The calculation shall
reflect A project life that is limited to the
period of entitlement or reasonable expectation
thereof. Reserves should not be claimed for
those volumes that will be produced beyond the
ending date of the current agreement unless there
is reasonable expectation that an extension, a
renewal, or a new contract will be granted. Such
reasonable expectation may be based on the
historical treatment of similar agreements by the
license-issuing jurisdiction. Otherwise, forecast
production beyond the contract term should be
classified as Contingent Resources with an
associated reduced chance of commercialization.
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Reserves and Constraints for Project Financing

• SEC 210.4-10(a)(26)
• Reserves are estimated remaining quantities of
  oil and gas and related substances anticipated to
  be economically producible, as of a given date,
  by application of development projects to known
  accumulations. In addition, there must exist, or
  there must be a reasonable expectation that there
  will exist, the legal right to produce or a
  revenue interest in the production, installed
  means of delivering oil and gas or related
  substances to market, and all permits and
  financing required to implement the project.
• Authors Note This applies to SEC Reserves of
  any category.

SPE-PRMS 3.1.2 While SPE guidelines do not
require that project financing be confirmed prior
to classifying projects as Reserves, this may be
another external requirement. In many cases,
loans are conditional upon the same criteria as
above that is, the project must be economic
based on Proved Reserves only. In general, if
there is not a reasonable expectation that loans
or other forms of financing (e.g., farm-outs) can
be arranged such that the development will be
initiated within a reasonable timeframe, then the
project should be classified as Contingent
Resources. If financing is reasonably expected
but not yet confirmed, the project may be
classified as Reserves, but no Proved Reserves
may be reported as above. SPE-PRMS 3.1.2
Reasonable Expectation Indicates a high degree
of confidence (low risk of failure) that the
project will proceed with commercial development
or the referenced event will occur.
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Proved Reserves and Constraints for Project Timing

• SEC 210.4-10(a)(22) Proved Reserves
• The project to extract the hydrocarbons must
  have commenced or the operator must be reasonably
  certain that it will commence the project within
  a reasonable time.
• SEC 210.4-10(a)(31)(ii) Undeveloped Reserves
• Undrilled locations can be classified as having
  undeveloped reserves only if a development plan
  has been adopted indicating that they are
  scheduled to be drilled within five years, unless
  the specific circumstances, justify a longer
  time.
• Authors Note The SEC regulations do not define
  what constitutes acceptable instances of
  specific circumstances that justify a longer
  time. Guidance, however, is provided in the SEC
  26 October 2009 Website Release Compliance and
  Disclosure Interpretations Oil and Gas Rules.

SPE-PRMS Table 1 Appendix A Commercial 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. In addition, a project is
commercial if the degree of commitment is such
that the accumulation is expected to be developed
and placed on production within a reasonable time
frame. 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.
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Proved Reserves and Constraints for Project Timing

• SEC 210.4-10(a)(22) Proved Reserves
• The project to extract the hydrocarbons must
  have commenced or the operator must be reasonably
  certain that it will commence the project within
  a reasonable time.
• SEC 210.4-10(a)(31)(ii) Undeveloped Reserves
• Undrilled locations can be classified as having
  undeveloped reserves only if a development plan
  has been adopted indicating that they are
  scheduled to be drilled within five years, unless
  the specific circumstances, justify a longer
  time.
• Authors Note The SEC regulations do not define
  what constitutes acceptable instances of
  specific circumstances that justify a longer
  time. Guidance, however, is provided in the SEC
  26 October 2009 Website Release Compliance and
  Disclosure Interpretations Oil and Gas Rules.

SPE-PRMS Table 1 Appendix A Commercial 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. In addition, a project is
commercial if the degree of commitment is such
that the accumulation is expected to be developed
and placed on production within a reasonable time
frame. 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.
Oh, my! 5 years nobody told me.
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Definition of Proved Area

• SEC 210.4-10(a)(22)(i)Proved Reserves
• The area of the reservoir considered as proved
  includes
• (A) The area identified by drilling and limited
  by fluid contacts, if any, and
• (B) Adjacent undrilled portions of the reservoir
  that can, with reasonable certainty, be judged to
  be continuous with it and to contain economically
  producible oil or gas on the basis of available
  geoscience and engineering data.

• SPE-PRMS Table 3 Proved Reserves
• The area of the reservoir considered as Proved
  includes
• the area delineated by drilling and defined by
  fluid contacts, if any, and
• (2) adjacent undrilled portions of the reservoir
  that can reasonably be judged as continuous with
  it and commercially productive on the basis of
  available geoscience and engineering data.

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Proved Area In the Absence of Established Fluid
Contacts

• SEC 210.4-10(a)(22) Proved Reserves
• (ii) In the absence of data on fluid contacts,
  proved quantities in a reservoir are limited by
  the lowest known hydrocarbons (LKH) as seen in a
  well penetration unless geoscience, engineering,
  or performance data and reliable technology
  establishes a lower contact with reasonable
  certainty.
• (iii) Where direct observation from well
  penetrations has defined a highest known oil
  (HKO) elevation and the potential exists for an
  associated gas cap, proved oil reserves may be
  assigned in the structurally higher portions of
  the reservoir only if geoscience, engineering, or
  performance data and reliable technology
  establish the higher contact with reasonable
  certainty.

SPE-PRMS Table 3 Proved Reserves In the absence
of data on fluid contacts, Proved quantities in a
reservoir are limited by the lowest known
hydrocarbon (LKH) as seen in a well penetration
unless otherwise indicated by definitive
geoscience, engineering, or performance
data.
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Proved Area In the Absence of Established Fluid
Contacts

• SEC 210.4-10(a)(25) Reliable Technology
• Reliable technology is a grouping of one or more
  technologies (including computational methods)
  that has been field tested and has been
  demonstrated to provide reasonably certain
  results with consistency and repeatability in the
  formation being evaluated or in an analogous
  formation.

SPE-PRMS Table 3 Proved Reserves In the absence
of data on fluid contacts, Proved quantities in a
reservoir are limited by the lowest known
hydrocarbon (LKH) as seen in a well penetration
unless otherwise indicated by definitive
geoscience, engineering, or performance data.
Such definitive information may include pressure
gradient analysis and seismic indicators.
Seismic data alone may not be sufficient to
define fluid contacts for Proved reserves (see
2001 Supplemental Guidelines, Chapter 8).
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Definition of Undeveloped Reserves

• SEC 210.4-10(a)(31)
• Undeveloped oil and gas reserves are reserves of
  any category that are expected to be recovered
  from new wells on undrilled acreage, or from
  existing wells where a relatively major
  expenditure is required for recompletion.
• (i) Reserves on undrilled acreage shall be
  limited to those directly offsetting development
  spacing areas that are reasonably certain of
  production when drilled, unless evidence using
  reliable technology exists that establishes
  reasonable certainty of economic producibility at
  greater distances.
• (ii) Undrilled locations can be classified as
  having undeveloped reserves only if a development
  plan has been adopted indicating that they are
  scheduled to be drilled within five years, unless
  the specific circumstances, justify a longer
  time.
• (iii) Under no circumstances shall estimates for
  undeveloped reserves be attributable to any
  acreage for which an application of fluid
  injection or other improved recovery technique is
  contemplated, unless such techniques have been
  proved effective by actual projects in the same
  reservoir or an analogous reservoir, as defined
  in paragraph (a)(2) of this section, or by other
  evidence using reliable technology establishing
  reasonable certainty.

SPE-PRMS Table 2 Appendix A Undeveloped
Reserves are quantities expected to be recovered
through future investments (1) from new wells on
undrilled acreage in known accumulations, (2)
from deepening existing wells to a different (but
known) reservoir, (3) from infill wells that will
increase recovery, or (4) where a relatively
large expenditure (e.g., when compared to the
cost of drilling a new well) is required to (a)
recomplete an existing well or (b) install
production or transportation facilities for
primary or improved recovery projects. SPE-PRMS
Table 3 Proved Reserves Reserves in undeveloped
locations may be classified as Proved provided
that The locations are in undrilled areas of
the reservoir that can be judged with reasonable
certainty to be commercially productive. Interpre
tations of available geoscience and engineering
data indicate with reasonable certainty that the
objective formation is laterally continuous with
drilled Proved locations.
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Definition of Proved Reserves for Improved
Recovery
SPE-PRMS 2.3.4 Improved Recovery The judgment
on commerciality is based on pilot testing within
the subject reservoir or by comparison to a
reservoir with analogous rock and fluid
properties and where a similar established
improved recovery project has been successfully
applied. Incremental recoveries through improved
recovery methods that have yet to be established
through routine, commercially successful
applications are included as Reserves only after
a favorable production response from the subject
reservoir from either (a) a representative pilot
or (b) an installed program, where the response
provides support for the analysis on which the
project is based.

• SEC 210.4-10(a)(25) Proved Reserves
• (A) Successful testing by a pilot project in an
  area of the reservoir with properties no more
  favorable than in the reservoir as a whole, the
  operation of an installed program in the
  reservoir or an analogous reservoir, or other
  evidence using reliable technology establishes
  the reasonable certainty of the engineering
  analysis on which the project or program was
  based and
• (B) The project has been approved for development
  by all necessary parties and entities, including
  governmental entities.

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Conclusions

• Reserves definition provide a framework to
  classify reserves according to the uncertainty
  level in the evaluation.
• The SPE and SEC definitions are more similar than
  you think.
• The SPE and SEC definitions are more different
  than you think.
• The perception of the consequences of
  non-compliance may affect how we perceive the
  different guidelines.

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Questions?
Herman G. Acuña Managing International V.P. Ryder
Scott Company (Herman_Acuna_at_RyderScott.com)