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Reserves, Resources
Reporting Examined

By CRETIES JENKINS

A multidisciplinary symposium focused on providing clarity to the estimation and reporting of petroleum reserves and resources was held in July in Houston. The symposium brought together a diverse group of stakeholders represented by 200 people from more than 100 organizations in 17 countries.

The event – jointly organized and sponsored by AAPG, the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers – was a follow-up to a 2007 conference held in Washington, D.C., soon after the release of the Petroleum Resources Management System (PRMS) document.

Following a keynote presentation by AAPG member Peter Gaffney, the opening technical session speakers – AAPG members John Etherington of PRA International and David MacDonald of BP Exploration, and Jim Ross of Ross Petroleum – explored opportunities for converging existing reserves/resources classification systems.

The presentations demonstrated the relationship of the broadly accepted PRMS to the Canadian Oil and Gas Evaluation Handbook and the United Nations Framework Classification – there is a great deal of similarity in these systems, and programs are under way to test the desirability of converging them.

The second session focused on the uses of reserves and resources numbers in the policy, regulatory and economic sectors:

• Jan Bygdvoll from the Norwegian Petroleum Directorate described the types of information they require from operators and how these compare with international standards.
• AAPG member Brenda Pierce of the U.S. Geological Survey gave an overview of how the survey, as a science agency without regulatory responsibility, approaches its resources assessments.
• Michelle Foss from the Bureau of Economic Geology at the University of Texas emphasized the role of public trust and the need for reporting companies to engage the news media.

Session three dealt with the use of information about reserves and resources by equity investors and lenders:

•  Dale Nojika from Ernst and Young highlighted the importance of reserves data in the preparation of financial statements.
• Kathryn Campbell of Sullivan and Cromwell discussed data showing that very few companies disclosed probable reserves – and none disclosed possible reserves under the revised SEC rules, even though this is often provided in other investor communications.
• Jon Rigby with UBS stressed that financial statement users want to understand the uncertainty in reported reserves and resources numbers.

The fourth session focused on mergers and acquisitions:

• Tom Petrie of Bank of America Merrill Lynch reviewed the geopolitical and non-reserve drivers of value in oil and gas transactions including prices, unconventionals and geopolitical considerations.
• Randy King, also of Bank of America Merrill Lynch, emphasized that reserve categories are becoming less meaningful to buyers who want to do their own assessment of the development risk and economic return thresholds, and who are willing to pay for significant reserves outside the proved category.

Session five was a panel discussion regarding the modified SEC regulations. Panel members included James Prince of Vinson & Elkins, Paul Horak with Deloitte & Touche, Don Roesle of Ryder Scott and Kerry Scott with Pioneer Natural Resources.

As a starting point for discussion, AAPG member John Hodgin of Ryder Scott provided an analysis of industry responses to publicly released SEC letters. The most frequently asked question by the SEC in these letters related to the timeframe and commitment to convert reserves from an undeveloped to a developed status.

The panel discussed this issue and several others – including the supporting documentation for development plans and the disclosure of supplemental reserves and resources information.

Session six dealt with issues specific to estimating unconventional resources and reserves:

• AAPG member David Elliott of the Alberta Securities Commission noted that guidelines and practices for estimating resources in unconventional reservoirs are not well developed and that additional guidance is needed.
• AAPG member Jeff Brown of ExplAnalysis discussed several techniques that can be used to estimate undeveloped resources in unconventional gas plays.
• Russell Hall of Russell Hall and Associates completed the session with a presentation focused on the evaluation of resource plays using practical statistics as detailed in the recent SPEE Monograph 3.

 

The seventh session focused on the differences between deterministic and probabilistic methods and their application to resource estimation:

• Rod Sidle of Texas A&M University argued that deterministic assessments are easy to conduct and audit, and that they provide internally consistent outcomes that are physically possible.
• AAPG member Bill Haskett with Decision Strategies countered that deterministic cases should only be used to frame the discussion, and that probabilistic methods are needed to capture the full range of possible outcomes and quantify those uncertainties with the greatest impact.
• AAPG member Mark McLane of Rose and Associates reviewed methods for probabilistically aggregating reserves, which reduces uncertainty and favors companies with lots of wells and/or large portfolios.

In the final session, Rusty Riese, AAPG Distinguished Ethics Lecturer, emphasized that industry must work together to make the best-informed decisions on technical and professional matters. Ron Harrell then discussed steps to engage the worldwide reserves community through the nearly completed PRMS applications document and reserves evaluation training.

The symposium wrap-up included comments from past AAPG president Dave Rensink on the role professional societies should play in the resources and reserves estimation process.