Definitions and Petroleum Reserves and Resources

Petroleum Reserves & Resources Definitions

Oil and gas that have been discovered, but not yet produced, cannot be readily measured. Trapped in the pore spaces of rock, thousands of feet below the surface, the amount of oil or gas in a reservoir cannot be measured with precision. But it is very important to have a good estimate of the amount of oil or gas that may lie in the reservoir. A company cannot evaluate whether a discovered field will be economic to develop without estimating the amount of production that it may obtain over time to balance against the investment required. Oil and gas reserves are a substantial asset on a company's balance sheet. Without a common approach to classification and estimation of oil and gas, it would be impossible to know whether those assets were comparable from one company to another.

New SEC Announcement:

SEC Modernizes Oil and Gas Company Reporting
Requirements to Provide Investors With More
Meaningful and Comprehensive Disclosure

FOR IMMEDIATE RELEASE

Washington, D.C., Dec. 29, 2008

The Securities and Exchange Commission today announced that it has unanimously approved revisions to modernize its oil and gas company reporting requirements to help
investors evaluate the value of their investments in these companies.

“In the more than a quarter century since the SEC last reviewed its rules in
this area, there have been significant changes in technology that have
increasingly limited the usefulness of current disclosures to the market and
investors,” said SEC Chairman Christopher Cox. “These updates to the SEC
rules will help ensure more meaningful and comprehensive disclosure of
information that, even though it does not appear on a company’s balance
sheet, is of significance to investors in making informed investment
decisions.”

John W. White, the Director of the SEC’s Division of Corporation Finance,
added, “The Commission’s adoption of these rule amendments is the final
phase of a key, long-term initiative of the Division of Corporation Finance
and the Office of the Chief Accountant. These updated rules consider the
significant changes that have taken place in the oil and gas industry since
the adoption of the original reporting requirements more than 25 years
ago.”

The Commission staff first recommended the issuance of a Concept Release
for public comment. Those public comments were used to formulate the
rule amendments that the Commission proposed earlier this year.
The new disclosure requirements approved by the Commission include
provisions that permit the use of new technologies to determine proved
reserves if those technologies have been demonstrated empirically to lead
to reliable conclusions about reserves volumes. The new requirements also
will allow companies to disclose their probable and possible reserves to
investors. Currently, the Commission’s rules limit disclosure to only proved
reserves.

The new disclosure requirements also require companies to report the
independence and qualifications of a reserves preparer or auditor; file
reports when a third party is relied upon to prepare reserves estimates or
conducts a reserves audit; and report oil and gas reserves using an average
price based upon the prior 12-month period rather than year-end prices.
The use of the average price will maximize the comparability of reserves
estimates among companies and mitigate the distortion of the estimates
that arises when using a single pricing date.

The full text of the adopting release concerning these amendments will be
posted to the SEC Web site as soon as possible.

The full text of the new reules are here (pdf approx 800k)

A summary (thank you Anibal WPC and Bernard Seiller of Total)

In the general comment on page 11  the SEC notes "In addition, to the extent appropriate, we have revised our proposals so that the final definitions are more consistent with terms and definitions in the PRMS to improve compliance and understanding of our new rules." 

This is a well deserved tribute to the joint work of the WPC and the professional societies

An acknowledgement to the Council: 

Many of the definitions are designed to be consistent with the Petroleum Resource Management System (PRMS).15

15 The Petroleum Resources Management System is a widely accepted standard for the management of petroleum resources developed by several industry organizations. See Society of Petroleum Engineers, the World Petroleum Council, American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers, Petroleum Resources Management System, SPE/WPC/AAPG/SPEE (2007).

WPC Original work from 1987 (originally presented at the 12th WPC in Houston)

WPC Summary of Definitions 1987 (pdf)

WPC Classification - 1987 (pdf)

WPC Discussion from 1987 (pdf)

WPC/SPE/AAPG Petroleum Reserves and Resources Definitions, 2004

Background to the definitions (html)

Petroleum Reserves Definitions (html)

Petroleum Resources Classification System and Definitions (html)

Auditing Standards for Reserves (html)

The above documents are in html. To download MS Word versions please click on the relevant topic below:

Background to the definitions (word)
Petroleum Reserves Definitions (word)
Petroleum Resources Classification System and Definitions (word)
Auditing Standards for Reserves (word)

Quick overview figure in PowerPoint

Final Version of the UNFC Minerals and Resources Document, 2004

From here you can download (approx 1.8 mb Word Document) the Final Version of UNFC for Energy and Mineral Resources .

In the Agenda of the forthcoming Ad Hoc Group Meeting of the UNECE secretariat, they are going to include an item to consider case studies, both on individual deposits and
country`s case studies showing how a national classification may be adapted to the UNFC principles; and what kind of dificulties are being faced in this attempt. For this purpose,  they are looking for volunteers (companies/ public) who might be interested in, to present it, during the next meeting, to be held in Geneva, on 17 and 18 November, 2004.  This also is in the spirit of the recommendations of the recent Joint ESCWA/UNSD/OPEC/ECE/ Regional Seminar, held in Beirut, in early June 2004.

Recent developments: (with links to SPE web site) - to 2008

Petroleum Resources Management System

Approved by the SPE Board and WPC in March 2007, this new system for defining reserves and resources was developed over more than two years, working with SPE, AAPG, and SPEE.  An archive of the prior definitions is also available.

PRMS Guide for Non-Technical Users

The guide provides the concepts in the PRMS in a four-page document that is intended to provide a quick overview for non-technical professionals

Mapping of Reserve Definitions

Around the world, government agencies and other organizations use slightly different definitions. This mapping provides a comparison of many of these definitions.

Estimating and Auditing Standards for Reserves

To assist those responsible for estimating reserves, or auditing those estimates, a standard approach has been outlined, along with minimum qualifications for those involved in reserves auditing.