Reserves Puzzlers Are They or Are They Not Reserves? Part 1 - - PowerPoint PPT Presentation

Reserves Puzzlers Are They or Are They Not Reserves? Part 1

Richard Smith, Gaffney Cline & Associates

CE seminar; 13 June 2016 Reserves & Resources Reporting

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SPE London/SPEE Europe – CE June 2016: Presentation Title / Richard Smith - Gaffney, Cline & Associates

DISCLAIMER THE

MATERIAL AND OPINIONS EXPRESSED IN THIS PRESENTATION ARE THOSE OF THE AUTHOR AND NOT NECESSARILY THOSE OF

GAFFNEY, CLINE &

• ASSOCIATES. WHILE THEY REFLECT WHAT IS BELIEVED TO

BE INFORMED OPINION, THEY ARE NOT REPRESENTED AS BEING THE OPINIONS OF THE

SPE/WPC/AAPG/SPEE/SEG

OR THE US SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY BODY.

READERS ARE URGED TO OBTAIN INDEPENDENT

ADVICE ON ANY MATTER RELATING TO STOCK MARKET TRANSACTIONS AND THE INTERPRETATION OF RESERVES DEFINITIONS AND GUIDANCE.

WHY IS THIS TOPIC OF INTEREST

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SPE London/SPEE Europe – CE June 2016: Presentation Title / Richard Smith - Gaffney, Cline & Associates

… BECAUSE OF THOSE WHO HAVE A

STAKE!

• OPERATING COMPANIES AND THEIR

OWNERS

• STOCKHOLDERS
• BUYERS & SELLERS
• INVESTORS, BANKS AND FINANCE GROUPS
• REGULATING AGENCIES & GOVERNMENTS

THERE ARE INTERNATIONAL STANDARDS

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SPE London/SPEE Europe – CE June 2016: Presentation Title / Richard Smith - Gaffney, Cline & Associates

THE PETROLEUM RESOURCES MANAGEMENT SYSTEM

“THE PRMS”

SPONSORED BY: THE SOCIETY OF PETROLEUM ENGINEERS (SPE);

REVIEWED AND JOINTLY SPONSORED BY THE WORLD PETROLEUM COUNCIL (WPC), THE AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG); AND THE SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE).

THIS STANDARD IS AN INTERNATIONALLY RECOGNIZED AND ACCEPTED STANDARD FOR THE EVALUATION OF OIL AND GAS RESOURCES.

THE INTERNATIONAL STANDARD

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SPE London/SPEE Europe – CE June 2016: Presentation Title / Richard Smith - Gaffney, Cline & Associates

TODAY’S DISCUSSION IS ABOUT IF “THE BOOKING” IS ACCEPTABLE ACCORDING TO THE STANDARD.

THE ESSENTIAL DEFINITION

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SPE London/SPEE Europe – CE June 2016: Presentation Title / Richard Smith - Gaffney, Cline & Associates

• Reserves Are Those Quantities Of Petroleum Anticipated To Be

Commercially Recoverable By Application Of Development Projects To Known Accumulations From A Given Date Forward Under Defined Conditions. (SPE PRMS)

• Reserves Must Further Satisfy Four Criteria Based On The

Development Project Applied:

> Discovered > Commercial > Recoverable > Remaining (As Of The Evaluation Date)

• DO NOT FORGET

 THE COMPANY MUST HAVE CLEAR ENTITLEMENT TO THE

RESERVES.

Reserves Evaluation Case Study

”Across an International Boundary”

“ ”

Project Fields A & B have proven hydrocarbons Company has interest in blocks in both countries but WI is

• different. Project has been static for 10 years.

Well A1 tested upper zone and established production, and then plugged back. Well A1 is completed in lower zone, tested, and suspended, waiting on tieback to platform. Well B1 penetrated upper zone and MDT, logs, etc., established HC’s, but shows poorer quality and properties compared to upper zone in Field A. There is no test. Shared resources are clearly defined across the border. Countries’ ministries agree and state unitization is required to

• proceed. Partners have agreed on WI% share.

FIELD A

WI = 0.7 Country Y

A1 A2 B1 B2

WI = 0.05 WI = 0.8 Country X

FIELD B

Partners have signed committments and are proceeding with the project. Ullage is agreed and contracted. Initial plan is to hookup A1, drill and complete A2, drill and complete B2. Production to begin 2H next year from A1. Evacuation Route Is In Country X. Production Is Sold in Country X.

FIELD A

WI = 0.7 Country Y

A1 A2 B1 B2

WI = 0.05 WI = 0.8 Country X

FIELD B

Company Asserts for A & B Discovered Recoverable Remaining Commercial

   

Fields A & B Same PVT Regime Similar Petrophysics Same Pressure Gradients

  

Field A Unitization Share Is Applied Only To Country X. Only Unitized WI% Attributed to Country X Volume Is Booked As Proved Reserves. Nothing Is Booked For Portion From Country Y. This Is In “Escrow” Until Final Governments Sharing Agreement. Field B Reasonable Certainty Of 1P (Proved) Is Difficult And Data Is Limited. Analogue Is Weak. Difficult To Defend As Reserves.

Reserves Evaluation Case Study

”Oil Gas Dual Structure with Fault”

“

OIL RESERVOIR

• SANCTION FID IS BASED ON COMBINED VOLUMES OF A & B
• ONLY ONE PRODUCTION DST WITH GOOD RATES.
• GOOD RESERVOIR PROPERTIES IN A, B & C. FDP IS PARTNER AGREED, SIGNIFICANT

LONG LEAD INVESTMENT COMMITTED AND UNDERTAKEN, SEVERAL CONTRACTS SIGNED.

• VOLUME EVALUATION AGREED. THERE IS UNCERTAINTY OF FAULTING / JUXTAPOSITION.

1 3

C A B

= well = DST

Image adapted from PGS in GeoExpro

W E

W E S e i s m i c i n t e r s e c t i o n

DST

FIELDS A & B & C HAVE PROVEN HYDROCARBONS PERMITS HAVE BEEN GIVEN. PARTNERS HAVE APPROVED THE PROJECT AND

FUNDING BASED ON 2P VOLUME.

C IS AN ADDITIONAL ”PLUS” BUT IS SCHEDULED FOR

LATER DEVELOPMENT.

PLANNED INVESTMENT MAKES 1P VOLUME NON-

COMMERCIALLY.

CE seminar; 13 June 2016 Reserves & Resources Reporting

THANK YOU QUESTIONS OR COMMENTS?

STAY TUNED FOR PART 2

Reserves Puzzlers Are They or Are They Not Reserves? Part 2

Richard Smith, Gaffney Cline & Associates

CE seminar; 13 June 2016 Reserves & Resources Reporting

Reserves Evaluation Case Study

”Big New Discovery – WOW”

“

COMPANY HAS INTEREST ONLY IN EAST LICENSE. PROVEN AND APPRAISED HYDROCARBONS WITH SUPER

PRODUCTIVE RESERVOIR. RADIUS OF INVESTIGATION FROM WELL TESTS ARE FROM A TO B DEPENDING ON ASSUMPTIONS.

CONCEPTUAL DEVELOPMENT PLAN IS AGREED. PARTNERS HAVE AGREED TO UNITIZATION PROCESS BUT

NO AGREEMENT YET.

FIELD WOW

East License West License

WI = 0.4 WI = 0.0 a b

PARTNERS HAVE SIGNED COMMITTMENTS FOR MOVING

FORWARD TO DEVELOPMENT.

DEVELOPMENT IS ASSURED AT THIS POINT AND COMMITS

FUNDS NECESSARY BASED ON ESTIMATED UNITIZED

• INTEREST. PARTNERS HAVE SIGNED AFE’S FOR LONG LEAD

ITEMS BASED ON ESTIMATED SHARE.

COMPANY IS PREPARING TO DECLARE COMMERCIAL

STATUS IN Q4.

FIELD WOW

East License West License

WI = 0.4 WI = 0.0 a b

Company Asserts for A & B Discovered Recoverable Remaining Commercial

   NO

WHAT IF

East License West License

WI = 0.4 WI = 0.0 a b IS THERE SOMETHING MISSING?

Reserves Evaluation Case Study

”Continuing Utilization Of Applied Techniques”

(SPEE Halifax – 2015)

“ ”

THE TARGET INJECTED BODIES ABOVE MAIN Sand THE TECHNOLOGY TRIED AND TRUE THE OUTCOME OVER SEVERAL YEARS

“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.

STATIC RESERVOIR PRESSURE Profile Data

OBSERVATI ONS

LARGE CONTIGUOUS AREA AREAL GAS CAP AREAL AQUIFER SAME PVT REGIME SAME PETROPHYSICS 4D SEISMIC CONTACT

SURVEILLANCE

AREAL PRESSURE BEHAVIOR

     

THE COMPANY ASSERTS

Discovered Recoverable Remaining Commercial

   

The Statistics of Economic Success  20 of 23  87%  Reasonable Certainty?

RATIOS OF RESERVES @ 5-YEARS COMPARED TO ORIGINAL ESTIMATE IS SIGNIFICANTLY ABOVE 1.0

• A DEFINED, APPROVED, FUNDED AND PERMITTED CAMPAIGN

FOR 4 NEW WELLS IN NEXT 24 MONTHS, STARTING IN MID- YEAR 2017.

• BELIEVES IT USES A RELIABLE TECHNOLOGY AND THUS

SUPPORTS HISTORICAL SUCCESS.

• ASKS INDEPENDENT CONSULTANT TO CERTIFY 1P & 2P

UNDEVELOPED RESERVES.

You Are The Consultant What Is Your Opinion? “ ”

Hmmm? Does this help? “ ”

SPE PRMS STATES: THE AREA OF THE RESERVOIR CONSIDERED AS PROVED INCLUDES (1) THE AREA DELINEATED BY DRILLING AND DEFINED BY

FLUID CONTACTS, IF ANY, AND (2) ADJACENT UNDRILLED PORTIONS OF THE RESERVOIR THAT CAN REASONABLY BE JUDGED AS CONTINUOUS WITH IT AND COMMERCIALLY PRODUCTIVE ON THE BASIS OF AVAILABLE GEOSCIENCE AND ENGINEERING DATA.

S.E.C. RULES STATE: …… RESERVES SHOULD NOT BE ASSIGNED TO

AREAS THAT ARE CLEARLY SEPARATED FROM A KNOWN ACCUMULATION BY A NON-PRODUCTIVE RESERVOIR.

CE seminar; 13 June 2016 Reserves & Resources Reporting

THANK YOU QUESTIONS OR COMMENTS?