Summary
Historically, oil and gas reserves definitions have included the term
"reasonable certainty" when describing the standard of high confidence/low
uncertainty for a conservative estimate of future recovery from an
accumulation. In 2008, the US Securities and Exchange Commission (SEC), one
source for such definitions and regulations, changed its rules on oil and gas
reserves and moved from a more rules-based approach to a more principles-based
approach. While the SEC regulations both before and after this change
incorporated the term "reasonable certainty," the philosophical change from
rules-based to principles-based regulation puts more responsibility on the
reserves evaluator to understand the uncertainties in the reserves estimation
and to "get it right."
This paper examines the stated definition of reasonable certainty as well as
the effective definition based on how the regulations were interpreted under
the prior rules-based system. Examples of prior methods of regulatory controls,
under a rules-based system, that no longer fit under a principles-based system
are noted. The paper then examines the current definition. The overprint of a
principles-based regulatory system must be considered to understand how such an
approach will impact the effective definition under the current rules. The
insights from the financial and legal communities are examined for their
learnings in which other forms of regulations underwent this same philosophical
change. This examination describes how rules-based systems are more "input
control" focused, while principles-based systems focus more on "outcomes."
Next, the paper suggests how the reserves evaluator should apply this
understanding of the new principles-based rules. The evaluator is now more
responsible to understand the range of uncertainty in reserves estimates and to
ensure that the outcome (the proved reserves estimate) satisfies the
regulations. Also, the paper discusses key tests to demonstrate that the
correct outcome - a reasonably certain volume - has been achieved. After 30
years of well-established practices, the responsible reserves evaluator has
examined changes as they evolved in then-current regulation text. Now, the
evaluator needs to additionally consider changes based on the implications of
principles-based regulations.
© 2011. Society of Petroleum Engineers
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History
- Original manuscript received:
13 July 2011
- Meeting paper published:
31 October 2011
- Manuscript approved:
28 September 2011
- Published online:
26 October 2011
- Version of record:
14 November 2011
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