Significant Differences in Proved Reserves Estimates Using SPE/WPC Definitions Compared to United States Securities and Exchange Commission (SEC) Definitions
- D.R. Harrell (Ryder Scott Company L.P.) | Thomas L. Gardner (Ryder Scott Petroleum Consultants)
- Document ID
- Society of Petroleum Engineers
- SPE Reservoir Evaluation & Engineering
- Publication Date
- December 2005
- Document Type
- Journal Paper
- 520 - 527
- 2005. Society of Petroleum Engineers
- 2.4.3 Sand/Solids Control, 5.6.3 Deterministic Methods, 4.1.5 Processing Equipment, 5.1 Reservoir Characterisation, 4.2 Pipelines, Flowlines and Risers, 5.1.2 Faults and Fracture Characterisation, 5.5 Reservoir Simulation, 5.5.11 Formation Testing (e.g., Wireline, LWD), 4.1.2 Separation and Treating, 1.2.3 Rock properties, 5.7 Reserves Evaluation, 1.6 Drilling Operations, 4.6 Natural Gas, 5.5.8 History Matching, 5.8.3 Coal Seam Gas
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A casual reading of the SPE/WPC (World Petroleum Congresses) PetroleumReserves Definitions (1997) and the U.S. Securities and Exchange Commission(SEC) definitions (1978) would suggest very little, if any, difference in thequantities of proved hydrocarbon reserves estimated under those twoclassification systems. The differences in many circumstances for bothvolumetric and performance-based estimates may be small.
In 1999, the SEC began to increase its review process, seeking greaterunderstanding and compliance with its oil and gas reserves reportingrequirements. The agency's definitions had been promulgated in 1978 inconnection with the Energy Policy and Conservation Act of 1975 and at a timewhen most publicly owned oil and gas companies and their reserves were locatedin the United States. Oil and gas prices were relatively stable, and virtuallyall natural gas was marketed through long-term contracts at fixed ordeterminable prices. Development drilling was subject to well-spacingregulations as established through field rules set by state agencies.
Reservoir-evaluation technology has advanced far beyond that used in 1978;production-sharing contracts were uncommon then, and probabilistic reservesassessment was not widely recognized or appreciated in the U.S. These changesin industry practice plus many other considerations have created problems inadapting the 1978 vintage definitions to the technical and commercial realitiesof the 21st century.
This paper presents several real-world examples of how the SEC engineeringstaff has updated its approach to reserves assessment as well as numerousremaining unresolved areas of concern. These remaining issues are important,can lead to significant differences in reported quantities and values, and mayresult in questions about the "full disclosure" obligations to the SEC.
For virtually all oil and gas producers, their company assets are thehydrocarbon reserves that they own through various forms of mineral interests,licensing agreements, or other contracts and that produce revenues fromproduction and sale. Reserves are almost always reported as static quantitiesas of a specific date and classified into one or more categories to describethe uncertainty and production status associated with each category. Theeconomic value of these reserves is a direct function of how the quantities areto be produced and sold over the physical or contract lives of theproperties.
Reserves owned by private and publicly owned companies are always assumed tobe those quantities of oil and gas that can be produced and sold at a profitunder assumed future prices and costs. Reserves under the control ofstate-owned or national oil companies may reflect quantities that exceed thosedeemed profitable under the commercial terms typically imposed on private orpublicly owned companies.
|File Size||411 KB||Number of Pages||8|
1.U.S. SEC Regulation S-X, Rule 4-10—Financial Accounting andReporting for Oil and Gas Producing Activities Pursuant to the FederalSecurities Laws and The Energy Policy and Conservation Act of 1975, U.S.Securities and Exchange Commission, Washington, DC.
2.Petroleum Reserves Definitions, SPE/WPC, Richardson, Texas(1997).
3. Harrell, D.R. and Acuna, H.: "Adapting Probabilistic Methods ToConform to Regulatory Guidelines," SPEREE (August 2002) 302.
4. Discussion comments made by SEC staff petroleum engineers during Societyof Petroleum Evaluation Engineers (SPEE) -sponsored Forums to discuss SECreserves definitions and applications, Houston, 31 October and 1 November 2000,23 October 2001, and 22 October 2002.
5. U.S. Securities and Exchange Commisssion, www.sec.gov.
6. SEC website page, http://www.sec.gov/divisions/corpfin/guidance/oilgasltr04152004.htm.
7.Palke, M.R. and Rietz, D.C.: "The Adaptation of ReservoirSimulation Models for Use in Reserves Certification Under Regulatory Guidelinesor Reserves Definitions," paper SPE 71430 presented at the 2001 SPE AnnualTechnical Conference and Exhibition, New Orleans, 30 September-3 October.
8.SEC website page, http://www.sec.gov/divisions/corpfin/guidance/cfactfaq.htm#P279_57537.
9.Harrell, D.R., Hodgin, J.E., and Wagenhofer, T.: "Oil and Gas Reserves Estimates:Recurring Mistakes and Errors," paper SPE 91069 presented at the 2004 SPEAnnual Technical Conference and Exhibition, Houston, 26-29 September.