Petroleum Reserves Definition
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The CCOP (“Committee for Coastal and Offshore Geoscience Programmes”) was initiated in 1966 by China, Japan, Republic of Korea and The Philippines under the auspices of ESCAP and the United Nations. CCOP became an independent intergovernmental organization in 1987 based on the common understanding of its member countries and the aspirations of the United Nations.

The name was changed in 1994, but the acronym CCOP was retained. CCOP has during this period devoted itself to the co-ordination of, and co-operation in, scientific activities related to coastal and offshore areas with respect to geological/geophysical surveys, regional map compilations, database development, development of human resources and transfer of state of the art technology.

 

The following classifications and definitions have been prepared by the Petroleum Reserves Office (PRO) of the Ministry of Land & Resources (MLR) after many years of consultations and deliberations on the basis of previous national standards: Oil Reserves Regulation (GB269-88) and Gas Reserves Regulation (GB270-88).

In the opinion of MLR, these classifications and definitions must be followed by oil companies when reporting and booking reserves of oil and gas and related substances to the MLR.

The standard is applicable to estimation, auditing and statistics of resources/reserves, also applicable to the approvals of domestic concession and development plan, transfer of mineral ownership and the appraisal of property by third party in the financing activities during petroleum exploration and development.

 

 

In Canada, three specific groups are working on a “made in Canada” set of definitions and guidelines: The Alberta Securities Commission (ASC), the Petroleum Society of Canadian Institute of Mining and Metallurgy (CIM), and the Calgary Chapter of the Society of Petroleum Evaluation Engineers (SPEE).

The process began in the late 1980s, with the formation of the CIM Standing Committee on Reserves Definitions. The result of this work was published in 1993, which was included in the Petroleum Society Monograph Number 1, entitled Determination of Oil and Gas Reserves.

At that time, the definitions did not catch on, but the Standing Committee continued and, in mid-1998, submitted a revised set of reserves definitions to the ASC.

The timing was opportune, since the ASC had recently formed a task force to make recommendations for improved reporting and disclosure by issuers operating in the oil and gas industry. Since that time, the ASC has made considerable progress toward their mandate, including reviewing the CIM draft reserves definitions.

In early 1999, the Calgary Chapter of the SPEE formed a Standing Committee on Reserves Evaluations to complement the CIM efforts. Their objective was to form an organization to standardize and enforce the “new” Canadian Reserve Definitions.

Enforcement and disciplinary action will be the responsibility of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). Progress has been made by all organizations, with completion targeted for the end of 2000.

 

According to SBOE Rule 468(b):

“The market value of an oil and gas mineral property interest is determined by estimating the value of the volumes of proved reserves.
Proved reserves are those reserves which geological and engineering information indicate with reasonable certainty to be recoverable in the future, taking into account reasonably projected physical and economic operating conditions.
Present and projected economic conditions shall be determined by reference to all economic factors considered by knowledgeable and informed persons engaged in the operation and buying or selling of such properties, e.g., capitalization rates, product prices and operation expenses.”

 

The Society of Petroleum Evaluation Engineers (SPEE) is an organization composed of petroleum engineers, largely independent consultants, who are engaged in the evaluation of oil properties, primarily estimation of reserves and economic evaluation.

SPEE is not a part of SPE but maintains a separate existence and does not always conform to SPE.

 

The United Nations Framework Classification (UNFC) for Energy and Mineral Resources is a universally applicable scheme for classifying/evaluating energy and mineral reserves/resources.

Most importantly, it allows a common and necessary international understanding of these classifications/evaluations.

The Classification is designed to allow the incorporation of currently existing terms and definitions into this framework and thus to make them comparable and compatible.

This approach has been simplified through the use of a three-digit code clearly indicating the essential characteristics of extractable energy and mineral commodities in market economies, notably:

  •  degree of economic/commercial viability;
  •  field project status and feasibility; and
  •  level of geological knowledge.

 

In February 2000, the Board of Directors, Society of Petroleum Engineers (SPE) Inc., the Executive Board, World Petroleum Congresses (WPC), and the Executive Committee, American Association of Petroleum Geologists (AAPG), approved a set of definitions for the Proved Reserves.

Estimates derived under these definitions rely on the integrity, skill, and judgment of the evaluator and are affected by the geological complexity, stage of exploration or development, degree of depletion of the reservoirs, and amount of available data.

Use of the definitions should sharpen the distinction between various classifications and provide more consistent resources reporting.

 

In March 1997, the Board of Directors, Society of Petroleum Engineers (SPE) Inc., and the Executive Board, World Petroleum Congresses (WPC) approved a set of definitions for the Proved Reserves.

Reserves derived under these definitions rely on the integrity, skill, and judgment of the evaluator and are affected by the geological complexity, stage of development, degree of depletion of the reservoirs, and amount of available data.

Use of these definitions should sharpen the distinction between the various classifications and provide more consistent reserves reporting.

 

 

 

On October 1, 1988 SPE approved and issued a revised set of definitions of reserves which improved on the 1981 definitions by adding definitions for Unproved (Probable and Possible) reserves and expanding the explanation and discussion of the nature of reserves in general and Proved reserves in particular.

This definition said:

“Reserves are estimated volumes of crude oil, condensate, natural gas, natural gas liquids, and associated substances anticipated to be commercially recoverable from known accumulations from a given date forward, under existing economic conditions, by established operating practices, and under current government regulations. Reserves estimates are based on interpretation of geologic and/or engineering data available at the time of the estimate.”

“Proved reserves can be estimated with reasonable certainty to be recoverable under current economic conditions. Current economic conditions include prices and costs prevailing at the time of the estimate. Proved reserves may be developed or undeveloped.”

 

The 1981 SPE definitions were a joint effort of SPE, AAPG and API in response to two events.

First, the substantial combined impact on the industry and evaluation practices caused by the end of proration, the OPEC embargo, extreme price increases in 1973 and 1979, the decline in domestic production, and the introduction of enhanced recovery to old fields.

Second, the adoption by the SEC and FASB of methods of reporting Proved reserves as part of the required reporting of public companies and the near-miss of Reserve Recognition Accounting. (See the SEC Definition).

 

In 1975, as part of the reaction to the “energy crisis,” the SEC was interested only in the proved oil and gas reserves. They came up with the following definition:

“Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data reveal with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e. prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.”

This is virtually identical to the existing SPE (1965) definition except for the addition of the phrase, “i.e., prices and costs as of the date the estimate is made.” and the final sentence.

  

In 1972, McKelvey set a resource classification system as indicated by the below figure,

 

 

 

In 1964, the SPE set its first definitions which were succinct and fit on one typewritten page, wherein Proved Reserves are defined as:

“The quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with easonable certainty to be recoverable in the future from known oil and gas reservoirs under existing economic and operating conditions".

 

It is readily apparent that the SPE and API definitions are the same. SPE goes on to add some explanation:

"When evaluating an individual property in an existing oil or gas field, the proved reserves within the framework of the above definition are those quantities indicated to be recoverable commercially from the subject property at current prices and costs, under existing regulatory practices, and with conventional methods and equipment."

 

In 1962, J.J. Arps published one of the more complete classification systems for petroleum reserves as depicted in the below figuer,

 

 

 

Petroleum is the world's major source of energy and is a key factor in the continued development of the world’s economies. Therefore, it is essential for the countries future planning to have a clear assessment of their petroleum reserves.

Such assessment is of considerable importance to overnments, international agencies, economists, bankers, and the international energy industry.

 

 

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