SPE Seeks Industry Comment on Updated Reserves Definitions

John Ritter, Chairperson, SPE Oil and Gas Reserves Committee

SPE has posted the proposed 2007 Petroleum Reserves and Resources Classification, Definitions, and Guidelines at www.spe.org/reserves for member and general industry comment. This update culminates 2 years of work by the SPE Oil and Gas Reserves Committee to establish internationally accepted guidelines.

The draft document is sponsored jointly with the World Petroleum Council (WPC), American Assn. of Petroleum Geologists (AAPG), and the Soc. of Petroleum Evaluation Engineers (SPEE). The sponsoring organizations are seeking broad international input from their membership by 1 February 2007 before presenting the definitions to their boards for final approval. Publication of the guidelines could occur as early as March 2007.

While individual opinions are welcome, it is preferable if organizations would critically review the proposed system and then submit a consolidated opinion based on internal consensus. Please address your comments by e-mail to ogr@spe.org.

A Necessary Update

The proposed system would update and replace the current guidelines as contained in the 1997 SPE/WPC Petroleum Reserves Definitions and the 2000 SPE/WPC/AAPG Petroleum Resources Classification and Definitions. These guidelines are now in common use internationally within the petroleum industry and provide a measure of comparability and reduce the subjective nature of resources estimation. However, the technologies employed in petroleum exploration, development, production, and processing continue to evolve and improve. In addition, the growth of the international petroleum industry and the expanding contribution of unconventional hydrocarbons to the worldwide resource base necessitated a re-examination of the existing system. SPE works closely with other organizations to maintain the definitions, and it issues periodic revisions to keep current with evolving technologies and changing commercial opportunities.

In updating the definitions, SPE’s Oil and Gas Reserves Committee completed a comparison of classifications and definitions used in eight other systems worldwide to identify best practices (see box next page). The primary updates include:

The system is project-based.
The class is based on the project chance of commerciality.
Categorization is based on quantities recovered by applying a defined project to a reservoir. The base case for assessing project economics uses evaluator’s forecast of future conditions (including prices and costs, technology available, environmental standards, fiscal terms, and regulatory constraints).
Guidelines are applicable to unconventional resources (including bitumen, oil shale, coalbed methane, and gas hydrates).

These definitions and guidelines are designed to establish technically based reserves and resources evaluation standards for the international petroleum industry. While, ideally, future national reporting and regulatory disclosure agencies would reference these standards, the guidelines do not replace those currently required by these agencies.

Significant Achievements

Other significant achievements have been made this year in moving toward creating a common language for describing reserves and resources.

Under a Memorandum of Under-standing signed in June, the United Nations Economic Commission for Europe has agreed that SPE will facilitate the development of the guidelines text of a globally harmonized common standard.
OPEC decided to use proved oil and gas reserves as defined by SPE for internal OPEC studies and reports.
Cambridge Energy Research Assocs. endorsed SPE taking the leadership role in setting petroleum reserves standards.
Collaboration among AAPG, SPEE, and WPC has increased dramatically with a joint committee addressing reserves and resources education.

SPE will actively promote and facilitate in-depth understanding of the definitions and their universal adoption. A new SPE Reserves Education Committee chaired by Mike Black was formed in October 2005 to create educational programs on reserves issues. This committee is planning a series of workshops in 2007 and is coordinating presentations and special reserves sessions at major technical conferences. You can find valuable background information about the reserves definitions on the SPE website, but here is a short history of reserves standards.

International efforts to standardize the definitions of reserves and resources and how they are estimated began in the 1930s. Early standards focused on proved reserves. Building on work initiated by SPEE, SPE published definitions for all reserves categories in 1987. In the same year, WPC (then, the World Petroleum Congress), working independently, published reserves definitions that were strikingly similar. In 1997, the two organizations jointly released a single set of definitions for reserves that could be used worldwide. In 2000, AAPG, SPE, and WPC jointly developed a classification system for all petroleum resources. This was followed by additional supporting documents, including supplemental application evaluation guidelines (2001) and a glossary of terms used in reserves and resources definitions (2005). SPE also published standards for estimating and auditing reserves information (revised this year).

The 1997 guidelines addressed only discovered/commercial projects and associated reserves, while the 2000 document provided a full classification system. The current system builds on this evolutionary process by merging and expanding previous guidance to evaluate total resources under an integrated, consistent process in all stages of development: discovered and prediscovered, commercial and noncommercial. Through this rigorous industry review process, the concerns of all key stakeholders are being considered in developing a final consensus technical standard.

John Ritter is Senior Director, Worldwide Reserves and Reservoir Engineering, for Occidental Petroleum Corp. He has more than 25 years of experience in the upstream sector and has held various assignments in North America, Asia, and Europe. Ritter is Chairperson of SPE’s Oil and Gas Reserves Committee, a member of the AAPG Committee on Resource Evaluation, and a member of the Colorado School of Mines Potential Gas Committee. He is Vice Chair of the United Nations Economic Commission for Europe Ad Hoc Group of Experts on the Harmonization of Minerals and Energy Reserves and Resources Terminology, an AAPG Certified Petroleum Geologist, and a member of the Houston Geological Soc. Ritter earned BS and MS degrees in geology from Emory U. in Atlanta, Georgia.