GUEST EDITORIAL

The 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management System (PRMS)

J.R. ETHERINGTON
PRA International Ltd. Occidental Petroleum

J.E. RITTER

John Etherington is Managing Director of PRA International Ltd., a Calgarybased consulting firm advising industry on resources assessment, reserves disclosures and portfolio management processes. He holds B.Sc. and M.S. degrees in geology. He previously spent over 32 years with Mobil Oil in Canada, the USA and international exploration and producing assignments, including five years in Mobils central resources audit group. John has conducted resources assessment training for both multinational and state-owned oil and gas companies. John served on the SPE Oil and Gas Reserves Committee with primary responsibility for the 2006 mapping of major international petroleum resources classification systems and the 2007 revised SPE resources definitions project termed the Petroleum Resources Management System (PRMS). He also coordinated SPEs interface with the United Nations Framework Classification and the International Accounting Standards Boards Extractive Activities projects. He is a member of the Petroleum Society, SPE, AAPG and EAGE, and was a SPE Distinguished lecturer in 2005/2006. John Ritter is Senior Director, Worldwide Reserves and Reservoir Engineering for Occidental Petroleum Corporation. He has over 25 years of experience in the upstream sector of the exploration and production business, and has held various assignments in North America, Asia and Europe. He is Ex-Officio Chairperson of SPEs Oil and Gas Reserves Committee, a member of the American Association of Petroleum Geologists (AAPG) Committee on Resource Evaluation and the Colorado School of Mines Potential Gas Committee. He is a member of the UNECE Ad Hoc Group of Experts on the Harmonization of Fossil Energy and Mineral Resources Terminology, an AAPG Certified Petroleum Geologist, a member of the Society of Petroleum Evaluation Engineers (SPEE) and a member of the Houston Geological Society. Ritter earned B.S. and M.S. degrees in geology from Emory University in Atlanta.

The task of creating and maintaining the framework and language to support such communication on a global basis has been assumed by a consortium of professional societies led by the Society of Petroleum Engineers (SPE). By late 2004, it became increasingly clear that the current guidance was not sufficient to meet evolving requirements due to advancements in technology, the international expansion of the industry and the increasing role of unconventional resources. The 2007 Petroleum Resources Management System(1) (hereinafter referred to as PRMS) consolidates and updates prior SPE Reserves and Resources reporting guidance to address this need. The proposed system was subjected to an extensive review process among international stakeholders; the result captures the current consensus of the petroleum industry. This document is cosponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE). It was subsequently also endorsed by the Society of Exploration Geophysicists (SEG).

The Classification System

The quantities of interest are those that can be recovered from a reservoir by a specific project under defined conditions. One project may target several reservoirs and one reservoir can be targeted by several projects, often at different stages of maturity. Evaluations ultimately focus on recoverable quantities and the associated future net revenues; thus, any classification system should be primarily project-based. All reserves and resources evaluations should be conducted in the context of the full classification system (Figure 1). A property evaluation that reports only reserves is typically incomplete; in almost all cases there will be additional quantities of Contingent and Prospective Resources. PRMS defines a two-dimensional framework wherein projects are classified according to their commercial certainty (the chance of being developed through to producing status) and estimates of recoverable quantities associated with each project are categorized based on technical certainty. In order to establish a more detailed resources reporting system that can also provide the basis for portfolio management, the commerciality axis may be further subdivided according to standard project status descriptions using one, or a combination, of subclassification options. Sub-classes of reserves (Figure 2a) are primarily based on the funding and operational status of projects (developed producing, developed non-producing and undeveloped). Such subdivisions have been traditionally applied to Proved Reserves only, but these same sub-classes may be used for all reserves categories; even Proved Developed Producing estimates have a range of uncertainty. Evaluators may subdivide Contingent Resources (Figure 2a) based on assumptions regarding changes in future conditions and their impact on economics:
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Introduction
It is essential that governments, lenders, investors and producers have access to consistent and reliable petroleum reserves and resources assessments, and that results be presented in a common format that communicates the underlying risks and uncertainties.
August 2008, Volume 47, No. 8

PRODUCTION
COMMERCIAL

a) Operational & Economic PRODUCTION

Commercial
developed

RESERVES
TOTAL PETROLEUM -IN-PLACE (PIIP) INITIALLY

TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

DISCOVERED PIIP

1P
Proved Probable

2P
Possible

3P Increasing Chance of Commerciality

sub-economic economic undeveloped

RESERVES Increasing Commercial Certainty

Not to scale

SUB-COMMERCIAL

Sub-Commercial

CONTINGENT RESOURCES
1C 2C
UNRECOVERABLE

DISCOVERED PIIP

3C

CONTINGENT RESOURCES

UNRECOVERABLE UNDISCOVERED PIIP Potentially Commercial

UNDISCOVERED PIIP

PROSPECTIVE RESOURCES
Low Estimate Best Estimate UNRECOVERABLE High Estimate

PROSPECTIVE RESOURCES

UNRECOVERABLE

Range of Technical Uncertainty

Not to scale

Range of Uncertainty

FIGURE 1: SPE resource classification system.

b) Decision-Based

Project Maturity Sub-Classes

On Production Approved for Development Justified for Development Development Pending Development Unclarified or On Hold Development not Viable

Economic Contingent Resources are associated with technically feasible projects that are currently economic, or projected to be economic with reasonably forecast improvements in conditions, but are currently not committed for development. Sub-Economic Contingent Resources are those discoveries for which there is insufficient information to clearly define a recovery plan, or analysis indicates that portions of the discovery, although technically feasible to recover, could not be economically developed under reasonably forecasted improvements in conditions. As discussed in the 2001 SPE Supplemental Guidelines, projects may also be sub-classified using decision-based project status descriptions (Figure 2b). Project status reflects the actions (business/budget decisions) required to move it towards commercial production. A summary description of the attributes for each subclass is provided in table format within PRMS. Irrespective of the qualitative sub-classification options utilized, the projects may be assigned a quantitative estimate of chance of reaching producing status. For example, evaluators may define that there is an 80% chance that project development will be initiated within a reasonable time frame. Such quantitative risk estimates can then be incorporated in portfolio management applications. A reasonable timeframe to initiate development may vary depending individual circumstances, but five years is a typical benchmark. Resource estimates in any class or sub-class may then be categorized according to the technical certainty based on two linked evaluations: the total petroleum initially-in-place in the reservoir and that portion of the in-place petroleum that can be recovered by applying a defined development project or projects (the recovery efficiency). The range of uncertainty of the recoverable, or potentially recoverable, quantities of marketable petroleum may be represented by either discrete deterministic scenarios or by a probability distribution. There is no change from the probability limits (P90/P50/ P10) associated with the cumulative scenario estimates (low/best/ high) as defined in prior guidance. It is emphasized that these estimates should reflect the same principles and approximately the same probabilities whether derived using deterministic or probabilistic methods. For reserves, the incremental terminology (Proved, Probable, Possible) is retained and, while clarified, there is no significant change in their associated technical criteria. The proposed guidance formalizes terminology for cumulative scenarios: 1P for Proved, 2P for Proved plus Probable and 3P for Proved plus Probable plus Possible. For Contingent Resources, new terminology is recommended to align with that used in reserves; the cumulative scenario notation is 1C/2C/3C. While no formal incremental terminology is defined
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Prospect Lead Play

FIGURE 2: SPE system sub-classification options.

in PRMS, evaluators informally use the terms C1/C2/C3 to align with Proved, Probable and Possible. It is emphasized that the Contingent Resource categories utilize the same criteria as for reserves but the associated projects do not meet commercial specifications. No incremental category labels are proposed for Prospective Resources and cumulative scenarios remain described by the terms low, best and high estimate. PRMS recognizes that incremental projects may be applied to increase recovery efficiency through changes to wells or facilities (e.g. workovers or compression) and infill or step-out drilling. It also includes improved recovery projects that supplement the natural reservoir drive mechanisms (waterfloods, secondary or tertiary recovery processes, including thermal). Classification and categorization use the same criteria as for initial projects. The projected increased recovery can be included in estimated reserves if the degree of commitment is such that the project will be developed and placed on production within a reasonable timeframe. Incremental recoveries through improved recovery methods that have yet to be established can only be classified as reserves after a favourable production response has been observed in the subject reservoir from a representative pilot or an installed program.

Unconventional Reserves and Resources

The SPE system specifies that unconventional resources exist in petroleum accumulations that are pervasive throughout a large area and that are not significantly affected by natural hydrodynamic influences. This includes basin centre gas accumulations, some bitumen deposits, coalbed methane, shale gas and gas hydrates where there is not a clear case of natural production driven
Journal of Canadian Petroleum Technology

by buoyancy of hydrocarbons on water. While the same general assessment tools (well logs, seismic, production history) are employed, they are interpreted in different ways. Production methods vary from early dewatering in coalbed methane to in situ steaming to open pit mining. Nonetheless, it is intended that PRMS will be appropriate for all types of petroleum accumulations regardless of their in-place characteristics, extraction method applied or degree of processing required.

Summary
The basic classification framework published by the SPE, WPC and AAPG in 2000(2) and the underlying 1997 SPE/WPC Reserves Definitions(3) remains a valuable tool to support consistent assessment and reporting of petroleum resources. The 2001 Supplemental Guidelines(4) provided additional background and clarifications. The major revisions in the proposed system are in the area of Contingent Resources with the goal of promoting a more consistent and comprehensive inventory of future recoverable quantities. By rigorously applying the recommended project-based approach, together with classification and sub-classification criteria, the industry can develop a more thorough understanding of future production profiles with associated project risk.

Commercial Conditions
An objective of the revised SPE system 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 base economics utilize forecast conditions, with the 2P Reserves and/or 2C Contingent Resources development scenario being the single most representative case. Most companies also run a series of sensitivity cases to examine the range of potential financial outcomes. One of these cases should assume that the current conditions (current being a one year historical average) would apply throughout the field life (e.g. costs and product price would not be escalated for inflation). This is referred to as the constant case. A commercial reality is that many lending institutions will only advance funds when proved reserves are sufficient to support an economic development project on a standalone basis under current conditions. Thus, there is a period in which the company, based on their 2P forecast case, recognizes a commercially viable venture but cannot fully commit to development until the proved reserves are sufficient to satisfy lender requirements. In practice, this means drilling additional appraisal wells before declaring full commerciality. In this interim period, it is common for companies to internally report probable and possible reserves as commercial under forecast conditions, but with the caveat that no proved reserves will be reported.

ReFerenceS
1. SPE/AAPG/WPC/SPEE, Petroleum Resources Management System; Society of Petroleum Engineers, Richardson, TX, 2007. 2. SPE/WPC/AAPG, Petroleum Resources Classification System and Definitions; Society of Petroleum Engineers, Richardson, TX, 2000. 3. SPE/WPC, Petroleum Reserves Definitions; Society of Petroleum Engineers, Richardson, TX, 1997. 4. SPE, Guidelines for the Evaluation of Petroleum Reserves and Resources; A Supplement to the SPE/WPC Petroleum Reserves Definitions and the SPE/WPC/AAPG Petroleum Resources Definitions; Society of Petroleum Engineers, Richardson, TX, 2001.

ProvenanceOriginal Petroleum Society manuscript, The 2007 SPE/ WPC/AAPG/SPEE Petroleum Resources Management System (PRMS) (2007-155GE), first presented at the 8th Canadian International Petroleum Conference (the 58th Annual Technical Meeting of the Petroleum Society), June 12-14, 2007, in Calgary, Alberta. Abstract submitted for review December 15, 2006; editorial comments sent to the author(s) October 31, 2007; revised manuscript received November 28, 2007; paper approved for pre-press November 28, 2007; final approval July 11, 2008.

Lloydminster & District Heavy Oil Section

The Lloydminster Section of the Petroleum Society is proud to make available the following awards to students from a high school in Lloydminster or surrounding areas: Two High School Scholarships at $1000 each An Essay Contest with prize of $1000

The scholarships are intended to financially assist students who will be continuing their education at a post secondary institute and who are majoring in Science or Engineering with a connection to the petroleum industry. The applicant must be in full-time attendance and be a member of the current years graduating class. At the time of awarding the scholarship, the applicant must be enrolled full-time in a post secondary program of study at a university, college or technical school.

Application deadline for all scholarships is August 29, 2008.

For applications forms and more details please visit the following website: http://www.petsocheavyoil.org/scholarshipinfo.htm

August 2008, Volume 47, No. 8

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