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Resources Management System

Guidelines for Application of the

Petroleum Resources Management System

“Helping oil and gas organizations capture value through

operational improvements and digital transformations.”
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Our Motto
“MOVING BUSINESS FORWARD”
in all aspects of our solutions.
OULINES 3

Guidelines for Application of the Petroleum Resources Management System

A Introduction F Aggregation of Reserves

Petroleum Resources Definitions,

Evaluation of Petroleum Reserves and
B Classification, and Categorization
Guidelines
G Resources

C Seismic Applications H Unconventional Resources Estimation

Assessment of Petroleum Resources Production Measurement and

D Using Deterministic Procedures I Operational Issues

Resources Entitlement and

E Probabilistic Reserves Estimation K Recognition
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INTRODUCTION
PRMS has been acknowledged as the
oil and gas industry standard for
reference and has been used by the
US Securities and Exchange
Commission (SEC) as a guide for their
updated rules, “Modernization of Oil
and Gas Reporting,” published 31
December 2008
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INTRODUCTION
Guidelines for Application of the “Petroleum Resources Management System” (PRMS)

SPE has been at the forefront of leadership in developing common standards for
petroleum resource definitions
An agreed set of definitions would benefit all stakeholders and provide increased
1. Consistency
2. Transparency
3. Reliability
HISTORY OF PETROLEUM RESERVES & RESOURCES 6

DEFINITIONS
Aiming to help operators maximising efficiencies by increasing production whilst reducing costs

A. The initial efforts at establishing oil reserves definitions in the US was led by the American Petroleum
Institute (API). At the beginning of World War I (WWI), the US government formed the National
Petroleum War Service Committee (NPWSC) to ensure adequate oil supplies for the war effort. At
the close of WWI, the NPWSC was reborn as the API,
B. In 1937, API created definitions for Proved oil reserves that they followed in their annual estimates of
US oil reserves. Little attention was paid to natural gas reserves until after 1946 when the American
Gas Association (AGA) created similar definitions for Proved gas reserves,
C. SPE’s initial involvement in establishing petroleum reserves definitions began in 1962,
D. In 1962, the SPE Board of Directors appointed a 12-man committee of well-recognized and
respected individuals. They were known as a “Special Committee on Definitions of Proved Reserves
for Property Evaluation.” The group was composed of two oil producers, one pipeline company, one
university professor, two banks, two insurance companies (lenders), and four petroleum consultants,
HISTORY OF PETROLEUM RESERVES & RESOURCES 7

DEFINITIONS
Aiming to help operators maximising efficiencies by increasing production whilst reducing costs

E. In 1981, SPE released updated Proved oil and gas definitions that contained only minor revisions of
the initial 1965 version,
F. The 1987 SPE petroleum reserves definitions were the result of an effort initiated by SPEE, These
definitions, issued for the first time by a large professional organization, included recognition of the
unproved categories of Probable and Possible Reserves,
G. AAPG became a sponsor of and integral contributor to the 2000 SPE/WPC/AAPG reserves and
resources definitions,
H. The loop of cooperation was closed in 2007 with recognition of SPEE as a fourth sponsoring society.
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PETROLEUM RESOURCES
DEFINITIONS, CLASSIFICATION,
AND CATEGORIZATION
GUIDELINES
PRMS is a fully integrated system
that provides the basis for
classification and categorization
of all petroleum reserves and
resources
PETROLEUM RESOURCES DEFINITIONS, 9

CLASSIFICATION, AND CATEGORIZATION GUIDELINES

Resources classification framework
A. PRMS fully integrated system, provides the basis
for classification and categorization of all
petroleum reserves and resources.
The best team is where B. Focus primarily on estimated recoverable sales

the best leader be quantities

C. PRMS is based on an explicit distinction between:
1. The development project that has been (or will
be) implemented to recover petroleum from
one or more accumulations and, in particular,
the chance of commerciality of that project
2. The range of uncertainty in the petroleum
quantities that are forecast to be produced and
sold in the future from that development
project
DEFINING A PROJECT 10

it is very important to understand clearly the basis for the fundamental distinction that is
made between project classification and reserve/resource categorization

PRMS is a project-based system, where a project:

“A project may be considered as an investment opportunity”

“and represents the link between the petroleum accumulation and the
decision-making process, including budget allocation. A project may, for
example, constitute the development of a single reservoir or field, or an
incremental development in a producing field, or the integrated
development of a group of several fields and associated facilities with a
common ownership. In general, an individual project will represent a
specific maturity level at which a decision is made on whether or not to
proceed (i.e., spend money), and there should be an associated range of
estimated recoverable resources for that project.”
DEFINING A PROJECT Cont'd … 11

Projects are implemented strictly on the basis of strategic drivers, but are
nonetheless defined by these financial metrics

PRMS is a project-based system, where a project:

“A project may be considered as an investment opportunity”

Defining the term “project” unambiguously can be difficult because its

nature will vary with its level of maturity. For example, a mature project
may be defined in great detail by a comprehensive development plan
document that must be prepared and submitted to the host government
or relevant regulatory authority for approval to proceed with development.
DEFINING A PROJECT Cont'd … 12

It is very important to understand clearly the distinction between the definition of

a project and the assignment of Reserves based on Reserves Status.

A key strength of using a project-based system like PRMS is that it

encourages the consideration of all possible technically feasible
opportunities to maximize recovery, even though some projects may not
be economically viable when initially evaluated, but become economically
viable in the future as a consequence of new technology being developed

“Reserves Status is a subdivision of recoverable quantities within a

project ”

Technology refers to the applied technique by which petroleum is

recovered to the surface and, where necessary, processed into a form in
which it can be sold.
PROJECT CLASSIFICATION 13

Under PRMS, each project must be classified individually

Under PRMS, each project must be classified individually so that the

estimated recoverable sales quantities associated with that project can
be correctly assigned to one of the three main classes: Reserves,
Contingent Resources, or Prospective Resources

The distinction between the three classes is based on the

definitions of (a) discovery and (b) commerciality

Contingent Resources may be assigned for projects that are

dependent on “technology under development.”
RANGE OF UNCERTAINTY CATEGORIZATION 14

The “range of uncertainty” reflects a range of estimated quantities potentially

recoverable from accumulation (s) by a specific, defined, project.
• Significant uncertainty are in the estimated in-place quantities and in the
recovery efficiency, and there may also be project-specific commercial
uncertainties.
• In PRMS, the range of uncertainty is characterized by three specific
scenarios reflecting low, best, and high case outcomes from the project

• If the project satisfies all the criteria for Reserves, the low, best, and high
estimates are designated as Proved (1P), Proved plus Probable (2P), and
Proved plus Probable plus Possible (3P), respectively.
• The equivalent terms for Contingent Resources are 1C, 2C, and 3C,
• The terms “low estimate,” “best estimate,” and “high estimate” are used for
Prospective Resources.
RANGE OF UNCERTAINTY CATEGORIZATION Cont'd … 15

“A deterministic estimate is a single discrete scenario within a range of outcomes

that could be derived by probabilistic analysis.”
• For very mature producing projects, it may be considered that there is such
a small range of uncertainty in estimated remaining recoverable quantities
that 1P, 2P, and 3P reserves can be assumed to be equal
• The range of uncertainty is never zero and any assumption that then
uncertainty is not material to the estimate should be carefully considered
and the basis for the assumption fully documented
• The range of uncertainty relates to the uncertainty in the estimate of
Reserves (or Resources) for a specific project.
• In the probabilistic method, probabilities actually correspond to ranges of
outcomes, rather than to a specific scenario.
• A deterministic estimate is a single discrete scenario that should lie within
the range that would be generated by a probabilistic analysis.
RANGE OF UNCERTAINTY CATEGORIZATION Cont'd … 16

“A deterministic estimate is a single discrete scenario within a range of outcomes

that could be derived by probabilistic analysis.”
• The range of uncertainty reflects the inability to estimate the actual
recoverable quantities for a project exactly, and the 1P, 2P, and 3P Reserves
estimates are simply single discrete scenarios that are representative of the
extent of the range of uncertainty.
• In PRMS there is no attempt to consider a range of uncertainty separately
for each of the 1P, 2P, or 3P scenarios, or for the incremental Proved,
Probable, and Possible Reserves, because the objective is to estimate the
range of uncertainty in the actual recovery from the project as a whole.

• The range of uncertainty is never zero and any assumption that then
uncertainty is not material to the estimate should be carefully considered
and the basis for the assumption fully documented
.
COMMERCIAL RISK AND REPORTED QUANTITIES 17

The chance of discovery is assessed based on the probability that all the necessary
components for an accumulation to form (hydrocarbon source, trap, migration, etc.) are
present.
In PRMS, commercial risk can be expressed quantitatively as the chance of
commerciality, which is defined as the product of two risk components:
1. The chance that the potential accumulation will result in the discovery
of petroleum. This is referred to as the “chance of discovery.”
2. Once discovered, the chance that the accumulation will be
commercially developed is referred to as the “chance of development.”
Projects with Contingent or Prospective Resources, the commercial risk is
likely to be quite significant and should always be carefully considered and
documented.
There is no industry standard for the reporting of Contingent Resource estimates.
However, the commercial risk associated with such projects can vary widely, with some
being "almost there" with, say, an 80% chance of proceeding to development, while
others might have a less than, say, 30% chance.
COMMERCIAL RISK AND REPORTED QUANTITIES Cont'd …
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PRMS, commercial risk can be expressed quantitatively as the chance of commerciality,

If Contingent Resources are reported externally, the commercial risk can be

communicated to users (e.g., investors, authorities) by various means,
including:

1. describing the specific contingencies associated with individual

projects;
2. reporting a quantitative chance of commerciality for each project;
and/or
3. assigning each project to one of the Project Maturity subclasses

Aggregation of quantities that are subject to commercial risk raises further

complications, which are discussed in next few slides.
PROJECT MATURITY SUBCLASSES
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Under PRMS, identified projects must always be assigned to one of the three classes:
Reserves, Contingent Resources, or Prospective Resources.

Further subdivision is optional, and three

subclassification systems are provided in PRMS that
can be used together or separately to identify
The best team is where particular characteristics of the project and its
associated recoverable quantities
the best leader be
The subclassification options are:
1. project maturity subclasses,
2. reserves status, and
3. economic status.
PROJECT MATURITY SUBCLASSES Cont'd … 20

Further subdivision is optional, and three subclassification systems are

provided in PRMS that can be used together or separately to identify
particular characteristics of the project and its associated recoverable
quantities
The subclassification options are:
1. project maturity subclasses,
2. reserves status, and
3. economic status.

Aggregation of quantities that are subject to commercial risk raises further

complications, which are discussed in next few slides.
PROJECT MATURITY SUBCLASSES Cont'd …
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1. On Production:
a) The project must be producing and selling petroleum to
market as at the effective date of the evaluation
b) The implementation of the project may not be 100%
complete at that date.
c) some of the reserves may still be Undeveloped
d) the full project must have all necessary approvals and
contracts in place, and capital funds committed

If a part of the development plan is still subject to approval

and/or commitment of funds, this part should be classified
as a separate project in the appropriate subclass.
PROJECT MATURITY SUBCLASSES Cont'd …
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2. Approved for Development

a) Requires that all approvals/contracts are in place, and
capital funds have been committed
b) Construction and installation of project facilities
should be underway or due to start imminently.

Only a completely unforeseeable change in circumstances that is

beyond the control of the developers would be an acceptable
reason for failure of the project to be developed within a reasonable
time frame.
PROJECT MATURITY SUBCLASSES Cont'd …
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3. Justified for Development

a) the operator and its partners agreeing that the
project is commercially viable and deciding to
proceed with development on the basis of an agreed
development plan
b) all approvals and contracts are in place (particularly
regulatory approval of the development plan,
c) a “final investment decision” has been made by the
developers to commit the necessary capital funds.

In PRMS, the recommended benchmark is that development would

be expected to be initiated within 5 years of assignment to this
subclass
PROJECT MATURITY SUBCLASSES Cont'd …
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4. Development Pending
a) projects that are actively subject to project-specific
technical activities, such as appraisal drilling or
detailed evaluation that is designed to confirm
commerciality and/or to determine the optimum
development scenario.
b) projects that have nontechnical contingencies,
provided these contingencies are currently being
actively pursued by the developers and are expected
to be resolved positively within a reasonable time
frame.
PROJECT MATURITY SUBCLASSES Cont'd …
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5. Development Unclarified or On Hold

a) project considered to have a reasonable chance of
commerciality, but where there are major nontechnical
contingencies (e.g., environmental issues) that need to be
resolved
6. Unclarified
a) project still under evaluation (e.g., a recent discovery) or
require significant further appraisal to clarify the potential for
development, and where the contingencies have yet to be
fully defined
7. Development not Viable.
a) technically viable project has been assessed as being of
insufficient potential to warrant any further appraisal
activities or any direct efforts to remove commercial
contingencies
RESERVES STATUS 26

Estimated recoverable quantities associated with projects that fully satisfy the requirements
for Reserves may be subdivided according to their operational and funding status.

Applying reserves status in the absence

of project maturity subclasses can lead
to the mixing of two different types of
Undeveloped Reserves and will hide the
fact that they may be subject to different
levels of project maturity:

1. Those Reserves that are Undeveloped simply because implementation of the approved, committed
and budgeted development project is ongoing and drilling of the production wells, for example, is
still in progress at the date of the evaluation; and,
2. Those Reserves that are Undeveloped because the final investment decision for the project has yet to
be made and/or other approvals or contracts that are expected to be confirmed
ECONOMIC STATUS 27

A third option for classification purposes is to subdivide Contingent Resource projects on

the basis of economic status, into Marginal or Sub-marginal Contingent Resources .

The following approximate relationships between the two optional approaches as per this table:

If evaluations are incomplete such that it is

premature to clearly define ultimate
chance of commerciality, it is acceptable
to note that project economic status is
“undetermined.”
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