T
he Petroleum Resources Management System (PRMS) is designed to provide consistency in estimating natural occurring petroleum quantities, evaluating projects to commercially extract and market derived products, and present results within a comprehensive classification framework. PRMS is the latest result of international efforts to standardize the definitions of petroleum resources and how they are estimated that began in the 1930’s.PRMS was published in April 2007 and is jointly spon- sored by the Society of Petroleum Engineers (SPE), the World Petroleum Council (WPC), the American Association of Pe- troleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE); PRMS was subsequently en- dorsed by the Society of Exploration Geophysicists (SEG). In November of 2011 these same five organizations working through the SPE Oil and Gas Reserves Committee (OGRC) published “Guidelines for the Application of PRMS” (PRMS-AG) to provide guidance, additional details includ- ing examples.
While PRMS and the supplemental guidelines provide an international technical standard for classification, external re- porting remains subject to specific requirements of individual government and regulatory agencies. Since publication of PRMS in 2007, many of these agencies have chosen to ex- plicitly reference PRMS or implicitly align with its underly- ing principles. For example, the U.S. Securities and Exchange Commission (SEC) used PRMS as a reference guide for its
RobeRt LoRenzen, Maersk Oil
SatindeR PuRewaL, EER (AS)
John etheRington, PRA International
publication in December 2008 titled "Modernization of Oil and Gas Reporting." The revised SEC disclosure rules essen- tially adopted PRMS definitions for reserves. Such disclosures provide investors with a sufficient understanding of a com- pany’s oil and gas assets to support comparative valuations.
PRMS defines reserves as 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. Reserves must further satisfy four criteria: They must be discovered, recoverable, commercial, and remaining (as of a given date) based on the development project(s) applied.
SEC also introduced the definition of “reliable technol- ogy.” The definition permits the use of technology (includ- ing computational methods) that has been field-tested and has demonstrated consistency and repeatability in the forma- tion being evaluated or in an analogous formation. This new standard will permit the use of a new technology or a com- bination of technologies once a company can establish and document the reliability of that technology or combination of technologies. Note, PRMS does not use the term “reliable technology,” but the intent is the same.
Companies are not required to disclose proprietary tech- nologies. The disclosure may be more general, and it can state that an integrated interpretation combining seismic data, geologic data, formation tests, and geophysical logs were used to calculate the reserves estimate. SEC staff, however, can as part of the review and comment process, request a company to provide supplemental data to support its conclusion that a technology or mix of technologies used to establish reserves meets the definition of reliable technology.
Note that under SEC rules, companies are required to disclose “Proved” reserves, have the option to additionally disclose “Probable and Possible” reserves and are prohibited from disclosing resources not classed as reserves. Other juris- dictions, such as Canada, allow the option to fully disclose all resource classes and categories as defined in PRMS.
SEG is now an active sponsor and contributor to PRMS and PRMS-AG. In the following sections, a condensed de- scription of the definition, classification, and categorization of petroleum resources is given based on the PRMS-AG.
Petroleum resources
PRMS is a fully integrated system that provides the basis for classification and categorization of all petroleum reserves and resources. Although the system encompasses the entire resource base, it is focused primarily on estimated recover- able sales quantities. Because no petroleum quantities can be recovered and sold without the installation of (or access to) Figure 1. Resources classification framework. On the vertical axis is
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the fundamental basis for portfolio management and decision making. In some cases, projects are implemented strictly on the basis of strategic drivers but are nonetheless defined by these financial metrics. The critical point is the linkage be- tween the decision to proceed with a project and the estimated future recoverable quantities associated with that project.
A project may involve the development of a single petro- leum accumulation, or a group of accumulations, or there may be more than one project implemented on a single accumula- tion. The following are some examples of projects:
• Where a detailed development plan is prepared for part- ner and/or government approval, the plan itself defines the project. If the plan includes some optional wells that are not subject to a further capital commitment decision and/ or government approval, these would not constitute a sepa- rate project, but would form part of the assessment of the range of uncertainty in potentially recoverable quantities from the project.
• Where a development project is defined to produce oil from an accumulation that also contains a significant gas cap and the gas cap development is not an integral part of the oil development, a separate gas development proj- ect should also be defined, even if there is currently no gas market.
• Where a development plan is based on primary recovery only, and a secondary recovery process is envisaged but will be subject to a separate capital commitment decision and/ or approval process at the appropriate time, it should be considered as two separate projects.
the appropriate production, processing, and transportation facilities, PRMS is based on an explicit distinction between: 1) the development project that has been (or will be) imple-
mented to recover petroleum from one or more accumula- tions and, in particular, the chance of commerciality of that project; and
2) the range of uncertainty in the petroleum quantities that are forecast to be produced and sold in the future from that development project.
This two-axis PRMS system is illustrated in Figure 1. Each project is classified according to its maturity or status (broadly corresponding to its chance of commerciality) using three main classes, with the option to subdivide further using sub- classes. The three classes are Reserves, Contingent Resources, and Prospective R esources. Separately, the range of uncertainty in the estimated recoverable sales quantities from that specific project is categorized based on the principle of capturing at least three estimates of the potential outcome: low, best, and high estimates.
For projects that satisfy the requirements for commerci- ality, Reserves may be assigned to the project, and the three estimates of the recoverable sales quantities are designated as 1P (proved), 2P (proved plus probable), and 3P (proved plus probable plus possible) Reserves. The equivalent categories for projects with contingent resources are 1C, 2C, and 3C, while the terms low estimate, best estimate, and high estimate are used for prospective resources. The system also accommodates the ability to categorize and report reserve quantities incre- mentally as proved, probable, and possible, rather than using the physically realizable scenarios of 1P, 2P, and 3P.
The two terms, project classification and reserve/resource categorization do not overlap. So for instance, possible re- serves cannot reflect uncertainty in maturation of the project of development. In this case, a contingent resource would be the appropriate classification.
Project definition
PRMS is a project-based system, where a project: represents the link between the petroleum accumulation and the deci- sion-making process, including budget allocation. A project may, for example, constitute the development of a single res- ervoir or field, or an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership. In gen- eral, an individual project will represent a specific maturity level at which a decision is made on whether or not to proceed (i.e., spend money), and there should be an associated range of estimated recoverable resources for that project.”
A project may be considered as an investment opportu- nity. Management decisions reflect the selection or rejection of investment opportunities from a portfolio based on consider- ation of the total funds available, the cost of the specific invest- ment, and the expected outcome (in terms of value) of that in- vestment. The project is characterized by the investment costs (i.e., on what the money will actually be spent) and provides
Figure 2. Classification of resources across a fault boundary. In the absence of a discovery well in the hanging wall (right), the data available and the uncertainty determine the resource classification.
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• Where decision making is entirely on a well-by-well basis, as may be the case in mature onshore environments, and there is no overall defined development plan or any capital commitment beyond the current well, each well constitutes a separate project. In the assessment of an undrilled prospect, a risked eco- nomic evaluation will be made to underpin the decision whether to drill. This evaluation must include consideration of a conceptual development plan in order to derive cost esti- mates and theoretically recoverable quantities (Prospective Re- sources) on the basis of an assumed successful outcome from the exploration well. The project is defined by the exploration well and the conceptual development plan. In some cases, an investment decision may be requested of management that involves a combination of exploration, ap- praisal, and/or development activities. Because PRMS subdi- vides resource quantities on the basis of three main classes that reflect the distinction between these activities (i.e., Reserves, Contingent Resources, and Prospective Resources), it is ap- propriate in such cases to consider that the investment deci- sion is based on implementing a group of projects, whereby each project can fit uniquely into one of the three classes. Project classification Under PRMS, each project must be classified individually so that the estimated recoverable sales quantities associated with that project can be correctly assigned to one of the three main classes: Reserves, Contingent Resources, or Prospective Re- sources (Figure 1). The distinction between the three classes is based on the definitions of (a) discovery and (b) commer- ciality The term “discovery” is used for a petroleum accumula- tion, or several petroleum accumulations collectively, whose existence has been determined by its actual penetration by a well, which has also clearly demonstrated the existence of significant moveable petroleum by flow to the surface or at least some recovery of a sample of petroleum. Log or core data may suffice for proof of existence of moveable petroleum if an analogous reservoir is available for comparison. The definition remains completely independent from any considerations of commerciality. In this context, “significant” implies that there is evidence of a sufficient quantity of petroleum to justify es- timating the in-place volume demonstrated by the well(s) and for evaluating the potential for economic recovery. Estimated recoverable quantities from a discovery are clas- sified as Contingent Resources until such time that a defined project can be shown to have satisfied all the criteria necessary to reclassify some or all of the quantities as reserves. In cases where the discovery is, for example, adjacent to existing infra- structure with sufficient excess capacity, and a commercially viable development project is immediately evident (i.e., by ty- ing the discovery well into the available infrastructure), the estimated recoverable quantities may be classified as Reserves immediately. More commonly, the estimated recoverable quantities for a new discovery will be classified as Contingent Resources while further appraisal and/or evaluation is carried out. In-place quantities in a discovered accumulation that are not currently technically recoverable may be classified as Dis- covered Unrecoverable. A project is deemed commercial if the degree of commit- ment is such that the accumulation is expected to be developed and placed on production within a reasonable time frame. A reasonable time frame for the initiation of development de- pends on the specific circumstances but, in general, should be limited to around five years.The criteria for commerciality (and hence assigning re- serves to a project) should be considered with care and cir- cumspection. While estimates of reserve quantities will fre- quently change with time, including during the period before production start-up, it should be a rare event for a project that had been assigned to the Reserves class to subsequently be re- classified as having Contingent Resources. Such a reclassifica- tion may occur as the consequence of an unforeseeable force majeure event that is beyond the control of the company, such as an unexpected political or legal change that causes develop- ment activities to be delayed beyond a reasonable time frame. A significant negative change in market prices may also cause such a reclassification. As an example of resource classification, consider two fault blocks separated with different size of fault offsets and differ- ent data sets (Figure 2). The left fault block has discovered hydrocarbons and development or planned development. The resources are thus Proved Reserves. If the fault is sealing or the fault is completely offsetting the reservoir, then the right fault block has Prospective Resources (case 1). If the fault is non-sealing or the reservoir is not completely offset, then the resource classification depends on the other information avail- able. In case 2, seismic, geologic, pressure, and analog data indicate extension and continuity of reservoir. The develop- ment plan also includes the right fault block but the resources are Unproved Reserves. In case 3, the development plan does not include the right fault block. Therefore, the resources are Contingent. Finally, in case 4, there are unknowns about res- ervoir or hydrocarbon presence, and, therefore, the resources in the right fault block are Prospective Resources.
Figure 3. Two fault blocks separated by one fault. An oil producer is tapping into block A. It is unknown what the sealing characteristics of the fault are. Reserves may be assigned in block A. Without a well penetration in block B and clear evidence regarding fault seal, potential volumes are classified as prospective resources.
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Uncertainty categorization
The “range of uncertainty” (see Figure 1) reflects a range of estimated quantities potentially recoverable from an accu- mulation (or group of accumulations) by a specific, defined, project. Because all potentially recoverable quantities are es- timates that are based on assumptions regarding future reser- voir performance (among other things), there will always be some uncertainty in the estimate of the recoverable quantity resulting from the implementation of a specific project. In almost all cases, there will be significant uncertainty in both the estimated in-place quantities and in the recovery efficien- cy, and there may also be project-specific commercial issues. In PRMS, the range of uncertainty is characterized by three specific scenarios reflecting low, best, and high case outcomes from the project. The terminology is different de- pending on which class is appropriate for the project, but the underlying principle is the same regardless of the level of maturity. In summary, if the project satisfies all the crite- ria for reserves, the low, best, and high estimates are desig- nated as proved (1P), proved plus probable (2P), and proved plus probable plus possible (3P), respectively. The equivalent terms for contingent resources are 1C, 2C, and 3C, while the terms “low estimate,” “best estimate,” and “high estimate” are used for prospective resources.
The three estimates may be based on deterministic meth- ods or on probabilistic methods. The relationship between the two approaches is highlighted in PRMS with the state- ment that: “A deterministic estimate is a single discrete sce- nario within a range of outcomes that could be derived by probabilistic analysis.” Further, “uncertainty in resource esti-
mates is best communicated by reporting a range of potential results. However, if it is required to report a single representa- tive result, the “best estimate” is considered the most realistic assessment of recoverable quantities. It is generally considered to represent the sum of proved and probable estimates (2P) when using the deterministic scenario or the probabilistic as- sessment methods.”
Examples of the use of seismic data
The above discussion on petroleum resources, project defi- nition and classification, and uncertainty categorization has been general and concerns all project and data types. Two ex- amples here illustrate how the use of seismic data can add val- ue to the reserves and resource process. Like other data types, seismic data come at some expense, and the seismic data must therefore compliment and compete with other data on tech- nical justifications, cost and value of information (VOI). The advantage of the new SEC rules for reserves estimation is that as a reliable technology, seismic data can now directly influ- ence the reserves estimation and classification, and, therefore, the potential value of seismic data and interpretation is in- creased. The key words are “reliable technology.” For the two examples shown here it is assumed that the technologies are proven reliable for the particular case in question. Therefore, the examples show the value of seismic data, if the data are reliable. Consequently, if there is doubt whether the data are going to prove reliable one might factor this uncertainty into the data feasibility study. For discussion on the reliability of seismic technology refer, the reader is referred to the article by Kloosterman et al. in this special section.
Figure 4. Two four-way structures sit in the same trend and have the same reservoir and petroleum system. A gas discovery well was drilled over the structure to the right. If seismic amplitude analysis shows that the gas cap can reliably be defined over the structure and consistent with the well and production tests, then the technology could be used to infer a similar gas cap over the structure to the left.
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In the first example, we will look at the information gained and from the use of 4D seismic data to monitor oil production from a horizontal well in a fault block (Figure 3). A fault has been identified in proximity to the oil producer. The reservoir is not fully offset by the fault and there is doubt about the fault transmissibility in this area. If the fault is seal- ing, then continuity of productivity is restricted to fault block (A). Reserves have thus been assigned to the estimated oil that can be produced in a reasonable time frame by wells in block A. The 1P, 2P, and 3P reserves are then estimated based on the certainty estimates around the well and the reservoir model in this block only. The volumes estimated in block B are undiscovered Prospective Resources, because there is no well in the block and there is no confirmation of the presence of oil-bearing reservoir. If 4D seismic data were acquired, and the data showed production effects directly up to and stopped at the fault boundary, then the fault could be assumed seal- ing. The resources in block B would thus stay as undiscovered until a well could be sanctioned and drilled to test presence of a productive reservoir. The prospective resources may move directly to reserves status with 1P, 2P, and 3P estimates be- ing governed by the new well information and the reservoir model in block B (assuming that other commercial criteria are satisfied). If, however, the 4D seismic showed that oil was