Summary
A casual reading of the SPE/WPC (World Petroleum Congresses) Petroleum
Reserves Definitions (1997) and the U.S. Securities and Exchange Commission
(SEC) definitions (1978) would suggest very little, if any, difference in the
quantities of proved hydrocarbon reserves estimated under those two
classification systems. The differences in many circumstances for both
volumetric and performance-based estimates may be small.
In 1999, the SEC began to increase its review process, seeking greater
understanding and compliance with its oil and gas reserves reporting
requirements. The agency’s definitions had been promulgated in 1978 in
connection with the Energy Policy and Conservation Act of 1975 and at a time
when most publicly owned oil and gas companies and their reserves were located
in the United States. Oil and gas prices were relatively stable, and virtually
all natural gas was marketed through long-term contracts at fixed or
determinable prices. Development drilling was subject to well-spacing
regulations as established through field rules set by state agencies.
Reservoir-evaluation technology has advanced far beyond that used in 1978;
production-sharing contracts were uncommon then, and probabilistic reserves
assessment was not widely recognized or appreciated in the U.S. These changes
in industry practice plus many other considerations have created problems in
adapting the 1978 vintage definitions to the technical and commercial realities
of the 21st century.
This paper presents several real-world examples of how the SEC engineering
staff has updated its approach to reserves assessment as well as numerous
remaining unresolved areas of concern. These remaining issues are important,
can lead to significant differences in reported quantities and values, and may
result in questions about the “full disclosure” obligations to the SEC.
Introduction
For virtually all oil and gas producers, their company assets are the
hydrocarbon reserves that they own through various forms of mineral interests,
licensing agreements, or other contracts and that produce revenues from
production and sale. Reserves are almost always reported as static quantities
as of a specific date and classified into one or more categories to describe
the uncertainty and production status associated with each category. The
economic value of these reserves is a direct function of how the quantities are
to be produced and sold over the physical or contract lives of the
properties.
Reserves owned by private and publicly owned companies are always assumed to
be those quantities of oil and gas that can be produced and sold at a profit
under assumed future prices and costs. Reserves under the control of
state-owned or national oil companies may reflect quantities that exceed those
deemed profitable under the commercial terms typically imposed on private or
publicly owned companies.
© 2005. Society of Petroleum Engineers
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History
- Original manuscript received:
6 April 2004
- Revised manuscript received:
25 July 2005
- Manuscript approved:
10 August 2005
- Version of record:
15 December 2005
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