WIXLIB

Reserves Reporting Standards: “Standards Pertaining to the Estimation and Auditing of Oil and Gas ReservesInformation” 1977, 2001 and 2007Ron Harrell1Search and Discovery Article #120002 (2009)Posted November 20, 2009*Adapted from presentation at AAPG Geoscience Technology Workshop, “Geological Aspects of Estimating Resources and Reserves,” Houston, Texas,September 9-11, 20091Ryder Scott Co. (retired) (rharrell7@comcast.net)AbstractMore than 30 years ago, SPE recognized the need to establish “Standards Pertaining to the Estimating and Auditing of Oil and GasReserves Information” (the Standards). This document was released in 1977 and paralleled the issuance of the 1978 SEC reservesreporting requirements. The Standards provided recommendations toward (1) certain defined terms, (2) minimum qualifications forestimators and auditors, and (3) the absolute necessity for estimators and auditors to maintain a high level of independence, objectivityand observance of confidentiality.Concurrent with the March 2007 release of PRMS, an updated and revised version of The Standards was approved by the SPE Board.This version retained all of the principles established in the 1977 version but was enlarged to embrace language and terminologyappropriate to PRMS. Additionally, three areas of the Standards were expanded to:1. More clearly explain the terms “auditors” and “auditing” as used by the petroleum industry and as contrasted with thefinancial professions,2. Recognize more stringent requirements to be considered in describing the qualifications of reserves estimators andauditors, and3. Acknowledge the increasing need to integrate the talents of engineers and geoscientists in the preparation of reliablereserves information.Copyright AAPG. Serial rights given by author. For all other rights contact author directly.

“Standards Pertaining to the Estimationand Auditing of Oil and GasReserves Information”1977, 2001 and 2007Presented by Ron Harrell, Ryder Scott Co.(retired)(retiredAAPG GTW RESERVES & RESOURCES 09‐09‐091

1977 SPE Committee formed to establishEstimating/Auditing practices IndividualNed BabsonArlen Edgar (Chair)Bob GilmoreDwayne GodseyBill GranberryJames D. HenryJoe RichardsonBert WheelerCompany AffiliationBabson & ShepherdIndependentD&MGodsey & EarlougherAMOCOARCOEXXONCONOCOAAPG GTW RESERVES & RESOURCES 09‐09‐092

2001 And 2007 Updates 2001 ‐ Modest updating to incorporateprobabilistic methodology terms within 1977SPE/WPC Definitions. 2007 – Significant revision to (1) providealignment with PRMS, (2) recognize the need formore stringent requirements of estimators andauditors, (3) include additional defined terms,and (4) acknowledge the importance ofintegrating geoscience and engineering inpreparing reliable reserves information.AAPG GTW RESERVES & RESOURCES 09‐09‐093

GUIDING PRINCIPLESArticleI.II.III.IV.V.VI.TopicBasis and Purpose of DevelopingStandardsDefinitions of TermsProfessional QualificationsObjectivity, Independence &ConfidentialityEstimation StandardsAuditing StandardsAAPG GTW RESERVES & RESOURCES 09‐09‐094

RESERVES INFORMATIONReserves Information May Include, AmongOther Things,: Estimated reserves quantities Estimated rates of production Future net revenues Present value of such future net revenue All estimates being made in accordance withgenerally accepted engineering andevaluation practicesAAPG GTW RESERVES & RESOURCES 09‐09‐095

DEFINED TERMS EntityReserves EstimatorEntity Reserves Report (80% )Property Reserves ReportReserves AuditorReserves Audit (Quantities, values, P1, P2, P3 ?)Auditing Tolerances (P1 10%, P2,P3, ? %)Financial AuditProcess ReviewAAPG GTW RESERVES & RESOURCES 09‐09‐096

BASIC QUALIFICATIONS1. Estimator: At least 3 years practical E&P experienceincluding at least 1 year in reserves estimation, plusA BS degree in engineering, geology or physicalsciencefrom a “recognized college”, orA license or certification from a recognized authority.2.3Auditor: At least 10 years practical E&P experienceincluding at least 5 years of being in charge ofreserves evaluation.Selections to be made on case‐by‐case basis and inconsideration of respect of their peers.AAPG GTW RESERVES & RESOURCES 09‐09‐097

EXPERIENCE QUALIFICATIONS 1/21. Clear understanding of geologic maps andmodels2. Judicious selection and reliance on analogs3. Appropriate reliance upon seismic information4. Fundamentals & limitations of reservoirsimulation5. Basic knowledge of deterministic & probabilisticmethodologiesAAPG GTW RESERVES & RESOURCES 09‐09‐098

EXPERIENCE QUALIFICATIONS 2/26. Use of performance techniques to confirm/refinegeological interpretations7. Recognize consequences of reliance on softwarewithout understanding of internal calculations8. Knowledge of various forms of entitlement andfiscal systems employed in region of responsibility9. Ongoing training in relevant reserves and reportingrequirements10. Recognition of need for ongoing ethics trainingAAPG GTW RESERVES & RESOURCES 09‐09‐099

OBJECTIVITY STANDARDS FORINTERNAL AUDITORS Accountability to ManagementSenior level Management, and/orBoard of Directors,Separate and apart from operating anddecision‐making process of entity Freedom to report irregularitiesComplete and unrestricted access to SeniorExecutive(s) and/or Board Member(s), andExclusion from reserves‐based compensationAAPG GTW RESERVES & RESOURCES 09‐09‐0910

PREPARING FOR AN AUDIT Project ObjectivesEstablishing audit tolerancesCooperation toward meeting tolerancesDefined time lines – start, progress report, final reportGenerally unrestricted access to recordsIdentification of and access to key personnelincluding technical staff and, in some cases,accounting and legalAAPG GTW RESERVES & RESOURCES 09‐09‐0911

CONCLUSION Please refer to official“Standards” document postedat:www.spe.org Your questions and commentsare now invited.AAPG GTW RESERVES & RESOURCES 09‐09‐0912

Reserves Reporting Standards: “Standards Pertaining to the Estimation and Auditing of Oil and Gas Reserves Information” 1977, 2001 and 2007 Ron Harrell1 Search and Discovery Article #120002 (2009) Posted November 20, 2009 *Adapted from presentation at AAPG Geoscience Technology Workshop, “Geological