SPE Approves New Reserves/Resources Document

John Ritter, Chairperson, SPE Oil and Gas Reserves Committee

In the December issue of JPT, I reported on the progress that had been made developing a revised set of reserves and resources definitions. I am now honored to announce that the 2007 SPE/World Petroleum Council (WPC)/American Association of Petroleum Geologists (AAPG)/Society of Petroleum Evaluation Engineers (SPEE) Petroleum Resources Management System (PRMS) has been approved by the SPE Board of Directors. The new system was approved previously by the respective boards of WPC, AAPG, and SPEE, and it is now posted on the spe.org website. Based on results of extensive industry review and broad consultation, PRMS represents the current consensus of the international stakeholders regarding resource evaluations.

Coordinated by the SPE Oil and Gas Reserves Committee (OGRC), the new system consolidates, builds on, and replaces guidance previously contained in the 1997 SPE/WPC Petroleum Reserves Definitions, the 2000 SPE/WPC/AAPG Petroleum Resources Classification and Definitions, and the 2001 SPE/WPC/SPEE Guidelines for the Evaluation of Petroleum Reserves and Resources. It should be noted that the last of these documents remains a critical reference tool in support of the new PRMS. The new document’s Appendix A, a Glossary of Terms Used in Resources Evaluations, updates and replaces that published in 2005.

The People and the Process

By late 2004, it became increasingly clear to many users that the current guidance was not sufficiently rigorous or encompassing to meet the requirements of industry stakeholders because of advancements in technology, the international expansion of the industry, and the increasing role of unconventional resources. It was clear that revisions were required to achieve a high level of consistency in estimating resource quantities. The OGRC took the lead in the update, seeking to obtain stakeholder input to fashion a system that would meet industry needs. The primary components of that process included

Developing a mapping document (available on the SPE website) to identify best practices in eight other targeted definition systems, completed in December 2005.
Creating eight drafts of the document, primarily within the OGRC, though with input from cosponsoring organizations, former OGRC members, and other industry professionals.
Providing an extended industry review period of approximately 100 days. During this period, more than 120 letters were mailed to different stakeholder groups requesting comment, more than 30 presentations were made worldwide to provide awareness of the process, and emails were sent to individual SPE members, in addition to postings on the SPE and AAPG websites.
Consolidating comments by the OGRC and drafting three additional versions of the system, leveraging advice and input from representatives of the cosponsor groups.

In all, the process took more than 2 years’ time to complete, dating from the creation of OGRC Mapping and Definitions Subcommittees in December 2004.

The Primary Components

The system is summarized in Fig. 1.

Fig. 1—A summary of the PRMS (not to scale).

The quantities captured in individual categories are those that can be recovered from a reservoir by a specific project or projects under defined conditions. The PRMS defines a 2D framework in which projects are classified according to commercial certainty (the chance of being developed through to producing status) and estimates of recoverable quantities associated with each project are categorized based primarily on technical certainty.

An objective of the revised PRMS is to better align the classification guidelines with the actual commercial evaluation processes. There is general agreement that companies make investment decisions based on their internal forecast of those conditions that are projected to apply during the development schedule. Thus, the new system focuses on a base economics case that uses forecast conditions defined by evaluators.

It is also intended that the new system will be appropriate for all types of petroleum accumulations regardless of their in-place characteristics, the extraction method applied, or the degree of processing required. Accordingly, the system also specifically recognizes and accommodates unconventional resources.

In summary, the primary updates are:

Combines four previous documents into the single PRMS.
Base case uses forecast conditions supported by sensitivity analyses including, but not restricted to, use of current constant conditions.
Recognizes the growing importance of unconventional resources.
Establishes low, middle, and high categories of Contingent Resources relabeled to 1C, 2C, and 3C, respectively.
Provides additional classification options:
- Reserves status of developed and undeveloped can be applied to 1P, 2P, and 3P reserves.
- Reserves, Contingent Resources, and Prospective Resources are subclassified by project maturity.
- Contingent Resources are subdivided into “marginal economic” and “submarginal economic.”

The OGRC will continue to maintain and update these best-practice resources assessment guidelines as technology and commercial conditions continue to evolve, working with its partners and other groups to realize consistency in application.

The Way Forward

Now that we have this new system, what are the forward plans? The main focus is on education. In conjunction with the approval of the PRMS, the SPE Reserves Education Committee, as charged by the SPE Board of Directors, has begun a series of initiatives including Applied Technology Workshops and development of training materials focused on resource assessments. The first workshop was held in Muscat, Oman, in March; additional workshops are scheduled in Calgary and Houston. These workshops are designed to familiarize key users with the new system and discuss implementation issues.

A jointly sponsored AAPG/SPE International Multidisciplinary Reserves Conference is scheduled for Washington, DC, in June 2007. This conference will engage global users of reserves and resources data (corporate management, accounting, banking, investors, and government officials) with petroleum engineers and geoscientists, who define and generate these data. Additional workshops are being developed for international locations in 2007–2008.

A Joint Committee for Reserves Evaluator Training has been formed and is made up of members representing SPE, AAPG, SPEE, and WPC. The primary purposes of the joint committee are to promote the creation of training modules that represent industry recommended practices as approved by all four sponsors and to actively seek opportunities to make such modules available to the industry worldwide at affordable cost.

In addition, the SPE Board has requested that the focus should now shift to the development of an applications document to support the new system. The SPE Reserves Education Committee and the OGRC are currently involved in a joint initiative to determine the best way to satisfy this request.

SPE Board Approves Reserves Auditing Standards

An updated version of the Standards Pertaining to the Estimating and Auditing of Petroleum Reserves Information was approved concurrent with the SPE Board approval of the SPE/WPC/AAPG/SPEE Petroleum Resources Management System. The need for this revision has been recognized for some time by the SPE Oil and Gas Reserves Committee and others because of

Increased global emphasis on improving corporate governance practices.
Industry reliance upon increasingly complex technology.
The need for greater cooperation between engineers and geoscientists.

Significant corporate governance issues that affect the new auditing standards are transparency and disclosure matters plus the expanded responsibility being placed on corporate boards of directors. Recommended minimum training and experience requirements have been specified for both reserves estimators and reserves auditors and have been expanded to include continuing training in ethics as a basic requirement. Newly defined or updated terms include (1) reserves estimator, (2) reserves auditor, (3) reserves and financial audits, (4) process reviews, (5) entity reserves report, (6) property reserves report, and (7) maximum tolerances acceptable in reserves audits. The existing requirements related to auditors and evaluators regarding objectivity, independence, and professionalism remain largely unchanged.

Please refer to www.spe.org for access to the 2007 Auditing Standards.

John Ritter is Senior Director, Worldwide Reserves and Reservoir Engineering, for Occidental Petroleum. 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 Society. Ritter earned BS and MS degrees in geology from Emory U. in Atlanta, Georgia.