Resource Evaluation - Gral. Methodology

7/25/2019 Resource Evaluation - Gral. Methodology

http://slidepdf.com/reader/full/resource-evaluation-gral-methodology 1/19

Resource Disclosure - Slide 1

Resource Evaluations –

General Methodology

June 2, 2014




• Resource overview and recent topics –

Provide a general review of the current resourceclassification system(s):

• Nomenclature,

• Uncertainties,

• Risks.

– Discuss some recent topics being considered forresource guidelines (unconventionals).

Introduction




PIIP = “Resources”

General term “Resources”is the quantity initially in-

place… • not just remaining

• not just recoverable

• Vertical Axis –

Resource Class/Risks• Horizontal Axis

Category/Uncertainty

SPE-PRMS Resource Management System




•Risk = Probability of an outcome occuring, eg:

•Discovery/No Discovery

•Reservoir Seal Present/Reservoir Seal Absent

•Development plan approved/Development Plan Dissapproved

•Uncertainty = range of possible results for a specific outcome that occurs.

•Small Discovery/Medium Discovery/Large Discovery

•Oil column 5m, 50 m, 500 m

•Reservoir extent

Risk versus Uncertainty




In Canada, resource disclosure is governed by NI 51-101 and COGEH:

Reserves

Resources Canadian companies generally adapting to new terminology

For SEC filers and US Companies:

Historically only Proved reserves

Now can file Probable and Possible also No official resource disclosure!

Could lead to more erratic terminology

Resource Disclosure (cont.)

SPE-PRMS – International Standard for ResourceClassification - written for general application.

COGEH adopted SPE-PRMS resourcenomenclature and concepts – minor differences.

Both SPE and COGEH still lacking guidance forunconventional resource classification.

Both groups continue to work on clarificationdocuments.




Concepts- Discovered vs. Undiscovered

• Discovered PIIP (=Discovered Resources), must be “known accumulation” i.e. individual body of petroleum in a reservoir, penetrated by a well and demonstrated the existence ofhydrocarbons by testing.

Conventional Reservoirs:

– Single well - entire accumulation commonly “Discovered”.

– Undrilled structures or isolated fault blocks “Undiscovered”.

Unconventional “Continuous Deposits”:

– When is the accumulation discovered?

– How far from confirmed productivity is Discovered?

• Discovery Risk (or 1-Risk = Chance of Discovery) separatesdiscovered from undiscovered PIIP.

Chance of

Discovery


http://slidepdf.com/reader/full/resource-evaluation-gral-methodology 7/19 Resource Disclosure - Slide 7

This was a much more simple definition with conventional plays To be discovered, must be “known accumulation” i.e. individual body

of petroleum in a reservoir, penetrated by a well.

Furthermore, to be “known” a well must have demonstrated the

existence of hydrocarbons by testing (however, log and/or core an

nearby analogy may suffice).

Concepts- Discovered vs. Undiscovered (cont.)



COGEH/SPE def’ns relating to discovery status (little help for unconventional):

COGEH : “Recognition as a known accumulation requires that the accumulation be penetrated by a

well and have evidence of the existence of petroleum”. (source COGEH Vol. 1, Sec 5.3.1; PRMS refers to

significant recoverable hydrocarbons)

Accumulation: “ An individual body of petroleum in a reservoir .” Known Accumulation: “ An

accumulation that has been penetrated by a well. In general, the well must have demonstrated the

existence of hydrocarbons by flow testing in order for the accumulation to be classified as “known.”However, where log and/or core data exist, and there is a good analogy to a nearby and geologically

comparable known accumulation, this may suffice.” Reservoir: “ A porous and permeable subsurface

rock formation that contains a separate accumulation of petroleum that is confined by impermeable

rock or water barriers and is characterized by a single pressure system.”

SPE-PRMS: Accumulation: “ An individual body of naturally occurring petroleum in a reservoir .

Known Accumulation: “ An accumulation is an individual body of petroleum-in-place. The keyrequirement to consider an accumulation as “known,” and hence containing Reserves or Contingent

Resources, is that it must have been discovered, that is, penetrated by a well that has established

through testing, sampling, or logging the existence of a significant quantity of recoverable

hydrocarbons.” Reservoir: “ A subsurface rock formation containing an individual and separate

natural accumulation of moveable petroleum that is confined by impermeable rocks/formations and is

characterized by a single- pressure system.”

Discovery Status Definitions



• How far away from confirmed productivity does the “known” accumulation extend?

• What about log control only (remember low phi)? Or seismic control only?

• At what point are we back into “exploration land”?

Concepts- Discovered vs. Undiscovered (cont.)

Discovery

What lands are 1P, 2P,

3P, Exploration?



Concepts – Commercial/Sub-commercial

• Estimated remaining recoverable portion of the

resource base split into 3 classes as follows:

– Discovered:

• Commercial – Reserves

• Sub-commercial – Contingent Resources

– Undiscovered – Prospective Resources

• CR and PR have add’l risks versus Reserves (related

to the likelihood of achieving commercial production):

– Contingent Resources – Chance of Development – Prospective Resources – Chance of Discovery and Chance of

development

• These risks need to be spoken to in the disclosure

documents

Chance of

Discovery

Chance of

Development

R

CR

PR



Considerations for Commerciality which distinguish

Reserves from Contingent Resources:

– Government/Legal/Environmental Approval - at

least “highly likely” to be approved.

– Technology – known technology/commercial.

– Market – ties to economics; can’t put a ring

around all resources in an area incl. 3rd party to

meet economics.

– Economics – economically recoverable under

forecast prices; if development required, must

provide a reasonable return on forecast prices;

>0 NPV constant

– Timing of Development – must be developed in

a reasonable timeframe. Some exceptions like

facility constraints.

Commerciality

Concepts – Commercial/Sub-commercial (cont.)



Concepts – Commercial/Sub-commercial (cont.)

Commerciality Consideration (cont.):

– Commitment to proceed – grey area; SEC says this is

required; CSA says in some cases maybe not req’d.

SPE-PRMS commitment very important; COGEH

more vague (somewhat related to CSA position). To

all evaluators commitment is an important

consideration for marginal projects or mega projects. – Financing – For SEC filings, reasonable certainty of

procurement of project financing is a requirement for

classification as reserves.

Sufficient Data – besides commerciality, when data

is sparse, at early stage of evaluation, classification

as CR rather than reserves may be appropriate.

N.B. Reservoir related risks are not contingencies!

Commerciality



SO NOW .... how do we portray this information to interested parties?

Certainly, reserves are adequate to define the regions identified with

commercial wells if certain criteria is met:

Government/Legal/Environmental Approval

Technology

Market

Economics

Timing of Development – must be developed in a reasonable

timeframe.

These will be discussed a little more later .... But if these criteria are not satisfied we can utilize Resource Disclosure

to portray this opportunity

Resource Disclosure (cont.)



– Contingent resources may or may not be

currently economically viable*.

– Following terms may be used:

• Economic Contingent Resources

• Sub-Economic Contingent Resources(Same fiscal conditions as reserves note that NI 51-101

doesn’t require this split)

– SPE-PRMS also defines other sub-classes of

Contingent Resources (Development Pending, On

Hold, Not Viable, etc.)

* All Contingent resources must still have a reality check cut-off for

recovery (not intended to include unrealistic depletion projects). A very high

price case may be used as a constraint.

SUB-

ECONOMIC

ECONOMIC

UNRECOVERABLE

LOW

ESTIMATE

CONTINGENT

HIGH

ESTIMATE

RESOURCES

BEST

ESTIMATE

Contingent Resources Sub-Classes



Within each class of remaining recoverable resources

there is a range of estimates (related to uncertainty):

– For Reserves - Proved, Probable and Possible.

– Under SPE and COGEH, P+P is generally

regarded as the “best estimate”. – If probabilistic methods used:

• minimum confidence level of P90, P50, P10

(1P, 2P, 3P)

– For CR and PR , the corresponding categories of

P, P+P and P+P+P are referred to as Low, Bestand High Estimates.

• Note cumulative, not incremental categories.

Uncertainty Categories




– Concept is that estimates move vertically from one

class to another as risks eliminated – i.e.

discovered and/or contingencies removed.

– A common misunderstanding is that that the

progression of resources is 1C to possible to

probable to proved (rather than 1C to 1P, etc.)

– 1C or 2C resources may have more inherent value

than P3:

• similarly low/best estimate PR vs. C3.

Sidebar: SEC restriction on disclosure of resources

but allowing optional possible reserves disclosure

may be challenge to consistency in evaluation and

reporting (desire to push CR into P3).

----------Development Contingencies ----------

--------- Confirmation of Accumulation --------

Resource Estimate Progression




• COGEH and SPE-PRMS provide limited clarification on extent of

“discovered” in unconventional plays.

• CR must have the potential for commercial production with known

technology (or technology under development).

• Major disconnect if a simple fault causes portion of conventional to be

“Undiscovered” but an entire extensive unconventional resource is

“Discovered” with a single test.

• E.g. Shale deposits have been known for many years – are these

resources now all discovered or should “discovered” evolve?

• “Discovered” distance from actual well tests should relate to depositional

environment and to whether other measures, such as well logs for untested

wells can reliably predict productivity. In many resource plays, logs alone are

not sufficient.

Challenges to Evaluation Consistency




• Classifying as “Undiscovered” (and hence PR not CR) where

productivity is unconfirmed provides better continuity and progressionof resource estimates as drilled and/or tested and productivity risk

removed.

• Consistent with the approach for stand-alone P3 where additional

risk (in that case commercial risk) and hence resource class

downgraded.

• GLJ approach – if confidence is such that, due to lack of information,

only 3C could be attributed – then NOT 3C – it’s Undiscovered (e.g.

3C halo generally not appropriate).

• Note that it could still be appropriate to allocate stand-alone 3C to

areas/fringe areas where there is some negative informationpreventing 1C or 2C assignments.

• The area “Discovered” should reflect depositional variability. The size

of this area may be expected to grow with understanding of the play.

Challenges to Evaluation Consistency (cont.)




Unconventional

The issue is often that the accumulation provides many more drilling

opportunities than booked as reserves:

Here is an example of a typical shale gas development:

Multiple hz wells in a section

Multiple hz layers in section

Here 8 hz wells /sec are shown

If this accumulation extends over a large

land base, it quickly becomes a mega-

project

Likely a bigger project than identified in

the Company’s drilling plans (at least in

the near term of 3-5 years)

Assignment of 1P, 2P and 3P and 1C, 2C

and 3C requires significant judgement

Resource Disclosure Unconventional

Resource Evaluation - Gral. Methodology

Documents