2009

Evaluation Parameters
Survey Committee Report
SPEE Annual Meeting
Santa Fe, New Mexico
16 June 2009
2009 Survey Committee
Michael Garcia, P.E.
Cary McGregor, P.E.

Tom Collier, P.E.
Chair
Statement of Purpose
This Survey is conducted annually by the Society of Petroleum Evaluation Engineers
to obtain opinions from the evaluation community regarding a limited number of
economic parameters used largely in the United States and Canada to evaluate oil
and gas properties. The stated purpose of the Survey is to capture and analyze, at a
single point in time, a set of chronically volatile economic parameters including, among
other things, projections of future oil and gas prices, drilling and operating costs, and
inflation. Opinions on the factors and methods used to calculate the present value of
future cash flows are also reflected in the statistical data.
When used with an appreciation for the purpose of the Survey and the source of the
statistical results, we believe this information can be useful in preparing and using
evaluations of oil and gas properties. Results can be particularly useful in comparing
the relative thinking of different groups, such as producers, consultants, and bankers,
and in appreciating how opinions have changed over time. Care should be taken in
using the information in this report. The Survey covers only a few of the many
considerations of importance in the evaluation of oil and gas properties. Those that
are included represent opinions expressed by the individual participants in response to
the questions asked. The questions may not be precisely stated and the analysis
provided might not fully reveal the difference of opinion that may exist among the
respondents. All respondents do not answer every question. Additionally, the
responses are subject to change over time and may not be relevant to any period
other than April May 2007. Additionally, some questions had so few responses as to
be statistically insignificant we have noted these as best we can.
The SPEE does not endorse the use of the Survey results, either in whole or in part,
as a valuation guideline. Neither the Survey nor its contents are intended to dictate
Fair Market Value parameters. Nevertheless, the popularity of the Survey shows that
the Survey is relevant when used within the scope of its intended purpose.
The Survey results in no way represent nor are they endorsed by preparers employer.
Preparers employer expressly disclaims any responsibility for the preparation or use
of this presentation.
Of the many questions we could ask, we only ask
a few each year, mostly of North American oil and
gas valuation professionals.
The information from the survey makes useful
comparison material, but it has a short shelf life.
The respondents wrote the report, SPEE didnt
Toms Company had nothing to do with it, either.
Overview
Survey Response Demographics
Crude Oil & Natural Gas Pricing
Cost Growth Projections
Reserve Estimating
Valuation
Respondent Information
Producer
45%
Consultant
38%
Other
6%
Private
Equity
3%
Banker
8%
2009 2008
37% Small (0 - 5 employees)
30%
Medium (Level 1)
(6 30 employees)
14%
Medium (Level 2)
(31 - 100 employees)
19%
Large
(31 - 100 employees)
Producer
44%
Consultant
38%
Private
Equity
8%
Other
7%
Banker
3%
Value of Properties Evaluated
4%
13%
24%
17%
26%
8% 8%
26%
34%
42%
59%
83%
96%
100%
0%
5%
10%
15%
20%
25%
30%
35%
<

$
1

M
M
$
1
0

M
M
$
1
0
0

M
M
$
2
5
0

M
M
$
5
0
0

M
M
$
1

B
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$
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,

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0%
20%
40%
60%
80%
100%
C
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a
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i
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F
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c
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,

%
2009 2009
2009 & Historic Crude Oil
Price Forecasts
Actual
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$0
$20
$40
$60
$80
$100
$120
1
9
8
6
1
9
8
9
1
9
9
2
1
9
9
5
1
9
9
8
2
0
0
1
2
0
0
4
2
0
0
7
2
0
1
0
2
0
1
3
2
0
1
6
2
0
1
9
$

p
e
r

b
a
r
r
e
l
l
Oil Price Forecast by Affiliation
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$110.00
2
0
0
9
2
0
1
1
2
0
1
3
2
0
1
5
2
0
1
7
2
0
1
9
Composite
Producer
Consultant
Banker
Private Equity
Other
2009 & Historic Natural Gas
Price Forecasts
Actual
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
1
9
8
6
1
9
8
9
1
9
9
2
1
9
9
5
1
9
9
8
2
0
0
1
2
0
0
4
2
0
0
7
2
0
1
0
2
0
1
3
2
0
1
6
2
0
1
9
$

p
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r

m
m
b
t
u
Natural Gas Price
Forecast by Affiliation
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
Composite
Producer
Consultant
Banker
Private
Equity
Other
Use of Hedges
Other, 32%
Weighted
average: Hedge
plus internal,
12%
Other, 4%
Hedge pricing
alone, 8%
Weighted
average: Hedge
plus bank, 8%
Do not rely on
hedges, 68%
Cost Growth
Generally lower
than last year

Drilling costs
reported deflation

Operating costs,
CPI low inflation in
early years

All categories
converge in 5-6
years
Year on Year
-5.00%
0.00%
5.00%
10.00%
2
0
0
9
2
0
1
1
2
0
1
3
2
0
1
5
2
0
1
7
2
0
1
9
Inflation
(CPI)
Drilling
Costs
Operating
Expenses
Cumulative
90%
110%
130%
150%
2
0
0
9
2
0
1
1
2
0
1
3
2
0
1
5
2
0
1
7
2
0
1
9
Inflation
(CPI)
Drilling
Costs
Operating
Expenses
Probabilistic Methods
49%
54%
39%
48%
57%
45%
46%
Pre-drill,
63%
Early, 32%
Middle, 4%
Late, 1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
0
9

b
y

P
h
a
s
e
0%
5%
10%
15%
20%
25%
H
i
g
h

d
e
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r
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e
M
o
d
e
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e

d
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L
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w

d
e
g
r
e
e
N
o
t

a
d
o
p
t
i
n
g
Aware, good understanding
Aware, basic understanding
Aware, haven't reviewed it
Unaware, hadn't heard of it
2008
0%
5%
10%
15%
20%
H
i
g
h

d
e
g
r
e
e
M
o
d
e
r
a
t
e

d
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L
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d
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g
r
e
e
N
o
t

a
d
o
p
t
i
n
g
Aware, good understanding
Aware, basic understanding
Aware, haven't reviewed it
Unaware, hadn't heard of it
2009
PRMS Correlation
Forecast Impact of New SEC
Rules
10%
9%
17%
12%
19%
13%
3%
4% 13%
Non-proved disclosure
Offset spacing
Technologies other than flow ...
Contacts (lowest known oil)
High Medium Low
Discount Rate Applied to Cash Flows
(by affiliation)
1%
13%
1%
12%
3%
61%
9%
15%
13%
56%
4%
13%
11%
62%
3%
16%
3%
5%
8%
8%
8%
75%
17%
17%
67%
0%
10%
20%
30%
40%
50%
60%
70%
80%
4.5% to
6%
6% to
7.5%
7.5% to
9%
9% to
10.5%
10.5% to
12%
12% to
13.5%
13.5%+
All
Producer
Consultant
Banker
Private Equity & Other
The yield rate used to determine the present value of a future cash flow based solely on
the cost of capital
Risk Adjusted Discount Rate Applied to
Cash Flows (by application)
2%
6%
16%
16%
38%
28%
2%
38%
0%
31%
15%
15%
17%
17%
39%
17%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
4
%

t
o

8
%
8
%

t
o

1
2
%
1
2
%

t
o

1
6
%
1
6
%

t
o

2
0
%
2
0
%

t
o

2
4
%
>
2
4
%
All
ONLY Discount
Rates
BOTH Discount &
Rsrv Adj
Average Reserve Adjustment Factors

Non-
Bankers Bankers
RAF
Only
RAF+
RADR
Proved Producing 96.7 100.0 96.6 98.1
Proved Shut In 75.8 71.0 74.4 76.1
Proved Behind Pipe 70.4 68.5 69.0 72.1
Proved Undeveloped 55.0 50.5 51.5 58.5
Probable Producing 46.6 0.0 35.9 48.5
Probable Behind Pipe 33.6 0.0 26.1 36.1
Probable Undeveloped 30.2 0.0 23.1 34.1
Possible Producing 26.6 0.0 20.3 30.8
Possible Behind Pipe 17.1 0.0 13.4 13.8
Possible Undeveloped 9.8 0.0 8.5 7.8
Thank you!
Basis for Discount Rate
Capital
Structure, 37%
Cost of
Debt/Equity,
17%
Debt Alone, 6%
Equity Alone,
15%
Prime Lending
Rate, 4%
Prime Lending
Rate /
Judgement, 6%
Financial
Indices, 2%
Professional
Judgement, 25%
Past SPEE
Surveys, 4%
Clients, 19%
Other, 2%
Borrowing Rate
3%
17%
24%
29%
0%
16%
12%
0%
5%
10%
15%
20%
25%
30%
35%
2.5% to
4%
4% to
5.5%
5.5% to
7%
7% to
8.5%
8.5% to
10%
10% to
11.5%
>11.5%
Profit of Value Creation
Component
Subsequent sale
6%
Conservative
price forecast
9%
Don't provide
valuations
6%
Other
2%
Conservative
production &
reserves
26%
RADR , Reserve
adjustment
factors
51%