World Petroleum Council

Petroleum
Resources Management
System

Sponsored by:

Prepared by the Oil and Gas Reserves Committee of

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).
 Table of Contents
Page No.
Preamble 1

1.0 Basic Principles and Definitions 2

1.1 Petroleum Resources Classification Framework 2
1.2 Project-Based Resources Evaluations 4

2.0 Classification and Categorization Guidelines 5

2.1 Resources Classification 6
2.1.1 Determination of Discovery Status
2.1.2 Determination of Commerciality
2.1.3 Project Status and Commercial Risk
2.1.3.1 Project Maturity Sub-Classes
2.1.3.2 Reserves Status
2.1.3.3 Economic Status
2.2 Resources Categorization 9
2.2.1 Range of Uncertainty
2.2.2 Category Definitions and Guidelines
2.3 Incremental Projects 11
2.3.1 Workovers, Treatments, and Changes of Equipment
2.3.2 Compression
2.3.3 Infill Drilling
2.3.4 Improved Recovery
2.4 Unconventional Resources 12

3.0 Evaluation and Reporting Guidelines 13

3.1 Commercial Evaluations 13
3.1.1 Cash Flow-Based Resources Evaluations
3.1.2 Economic Criteria
3.1.3 Economic Limit
3.2 Production Measurement 15
3.2.1 Reference Point
3.2.2 Lease Fuel
3.2.3 Wet or Dry Natural Gas
3.2.4 Associated Non-Hydrocarbon Components
3.2.5 Natural Gas Re-Injection
3.2.6 Underground Natural Gas Storage
3.2.7 Production Balancing
3.3 Resources Entitlement and Recognition 17
3.3.1 Royalty
3.3.2 Production-Sharing Contract Reserves
3.3.3 Contract Extensions or Renewals

4.0 Estimating Recoverable Quantities 19

4.1 Analytical Procedures 19
4.1.1 Analogs
4.1.2 Volumetric Estimate
4.1.3 Material Balance
4.1.4 Production Performance Analysis
4.2 Deterministic and Probabilistic Methods 21
4.2.1 Aggregation Methods
4.2.1.1 Aggregating Resources Classes

Table 1: Recoverable Resources Classes and Sub-Classes 24

Table 2: Reserves Status Definitions and Guidelines 27
Table 3: Reserves Category Definitions and Guidelines 28

Appendix A: Glossary of Terms Used in Resources Evaluations 30

Petroleum Resources Management System
Preamble
Petroleum resources are the estimated quantities of hydrocarbons naturally occurring on or within
the Earth’s crust. Resource assessments estimate total quantities in known and yet-to-be-
discovered accumulations; resources evaluations are focused on those quantities that can
potentially be recovered and marketed by commercial projects. A petroleum resources
management system provides a consistent approach to estimating petroleum quantities,
evaluating development projects, and presenting results within a comprehensive classification
framework.

International efforts to standardize the definitions of petroleum resources and how they are
estimated began in the 1930s. Early guidance focused on Proved Reserves. Building on work
initiated by the Society of Petroleum Evaluation Engineers (SPEE), SPE published definitions for
all Reserves categories in 1987. In the same year, the World Petroleum Council (WPC, then
known as the World Petroleum Congress), working independently, published Reserves definitions
that were strikingly similar. In 1997, the two organizations jointly released a single set of
definitions for Reserves that could be used worldwide. In 2000, the American Association of
Petroleum Geologists (AAPG), SPE, and WPC jointly developed a classification system for all
petroleum resources. This was followed by additional supporting documents: supplemental
application evaluation guidelines (2001) and a glossary of terms utilized in resources definitions
(2005). SPE also published standards for estimating and auditing reserves information (revised
2007).

These definitions and the related classification system are now in common use internationally
within the petroleum industry. They provide a measure of comparability and reduce the subjective
nature of resources estimation. However, the technologies employed in petroleum exploration,
development, production, and processing continue to evolve and improve. The SPE Oil and Gas
Reserves Committee works closely with other organizations to maintain the definitions and issues
periodic revisions to keep current with evolving technologies and changing commercial
opportunities.

This document consolidates, builds on, and replaces guidance previously contained in the 1997
Petroleum Reserves Definitions, the 2000 Petroleum Resources Classification and Definitions
publications, and the 2001 “Guidelines for the Evaluation of Petroleum Reserves and
Resources”; the latter document remains a valuable source of more detailed background
information, and specific chapters are referenced herein. Appendix A is a consolidated glossary
of terms used in resources evaluations and replaces those published in 2005.

These definitions and guidelines are designed to provide a common reference for the
international petroleum industry, including national reporting and regulatory disclosure agencies,
and to support petroleum project and portfolio management requirements. They are intended to
improve clarity in global communications regarding petroleum resources. It is expected that this
document will be supplemented with industry education programs and application guides
addressing their implementation in a wide spectrum of technical and/or commercial settings.

It is understood that these definitions and guidelines allow flexibility for users and agencies to
tailor application for their particular needs; however, any modifications to the guidance contained
herein should be clearly identified. The definitions and guidelines contained in this document
must not be construed as modifying the interpretation or application of any existing regulatory
reporting requirements.

This SPE/WPC/AAPG/SPEE Petroleum Resources Management System document, including its

Appendix, may be referred to by the abbreviated term “SPE-PRMS” with the caveat that the full
title, including clear recognition of the co-sponsoring organizations, has been initially stated.

1
1.0 Basic Principles and Definitions
The estimation of petroleum resource quantities involves the interpretation of volumes and values
that have an inherent degree of uncertainty. These quantities are associated with development
projects at various stages of design and implementation. Use of a consistent classification system
enhances comparisons between projects, groups of projects, and total company portfolios
according to forecast production profiles and recoveries. Such a system must consider both
technical and commercial factors that impact the project’s economic feasibility, its productive life,
and its related cash flows.

1.1 Petroleum Resources Classification Framework

Petroleum is defined as a naturally occurring mixture consisting of hydrocarbons in the gaseous,
liquid, or solid phase. Petroleum may also contain non-hydrocarbons, common examples of
which are carbon dioxide, nitrogen, hydrogen sulfide and sulfur. In rare cases, non-hydrocarbon
content could be greater than 50%.

The term “resources” as used herein is intended to encompass all quantities of petroleum
naturally occurring on or within the Earth’s crust, discovered and undiscovered (recoverable and
unrecoverable), plus those quantities already produced. Further, it includes all types of petroleum
whether currently considered “conventional” or “unconventional.”

Figure 1-1 is a graphical representation of the SPE/WPC/AAPG/SPEE resources classification

system. The system defines the major recoverable resources classes: Production, Reserves,
Contingent Resources, and Prospective Resources, as well as Unrecoverable petroleum.
PRODUCTION
COMMERCIAL

RESERVES

1P 2P 3P
TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

DISCOVERED PIIP

Increasing Chance of Commerciality

Proved Probable Possible

CONTINGENT
SUB-COMMERCIAL

RESOURCES

1C 2C 3C

UNRECOVERABLE

PROSPECTIVE
UNDISCOVERED PIIP

RESOURCES

Low Best High

Estimate Estimate Estimate

UNRECOVERABLE

Range of Uncertainty
Not to scale

Figure 1-1: Resources Classification Framework.

The “Range of Uncertainty” reflects a range of estimated quantities potentially recoverable from
an accumulation by a project, while the vertical axis represents the “Chance of Commerciality,
that is, the chance that the project that will be developed and reach commercial producing status.
The following definitions apply to the major subdivisions within the resources classification:

2
 TOTAL PETROLEUM INITIALLY-IN-PLACE is that quantity of petroleum that is estimated to
exist originally in naturally occurring accumulations. It includes that quantity of petroleum that
is estimated, as of a given date, to be contained in known accumulations prior to production
plus those estimated quantities in accumulations yet to be discovered (equivalent to “total
resources”).

DISCOVERED PETROLEUM INITIALLY-IN-PLACE is that quantity of petroleum that is

estimated, as of a given date, to be contained in known accumulations prior to production.

PRODUCTION is the cumulative quantity of petroleum that has been recovered at a

given date. While all recoverable resources are estimated and production is measured in
terms of the sales product specifications, raw production (sales plus non-sales) quantities
are also measured and required to support engineering analyses based on reservoir
voidage (see Production Measurement, section 3.2).

Multiple development projects may be applied to each known accumulation, and each project will
recover an estimated portion of the initially-in-place quantities. The projects shall be subdivided
into Commercial and Sub-Commercial, with the estimated recoverable quantities being classified
as Reserves and Contingent Resources respectively, as defined below.

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. Reserves must further satisfy four criteria: they must be
discovered, recoverable, commercial, and remaining (as of the evaluation date) based on
the development project(s) applied. Reserves are further categorized in accordance with
the level of certainty associated with the estimates and may be sub-classified based on
project maturity and/or characterized by development and production status.

CONTINGENT RESOURCES are those quantities of petroleum estimated, as of a given

date, to be potentially recoverable from known accumulations, but the applied project(s)
are not yet considered mature enough for commercial development due to one or more
contingencies. Contingent Resources may include, for example, projects for which there
are currently no viable markets, or where commercial recovery is dependent on
technology under development, or where evaluation of the accumulation is insufficient to
clearly assess commerciality. Contingent Resources are further categorized in
accordance with the level of certainty associated with the estimates and may be sub-
classified based on project maturity and/or characterized by their economic status.

UNDISCOVERED PETROLEUM INITIALLY-IN-PLACE is that quantity of petroleum

estimated, as of a given date, to be contained within accumulations yet to be discovered.

PROSPECTIVE RESOURCES are those quantities of petroleum estimated, as of a given

date, to be potentially recoverable from undiscovered accumulations by application of
future development projects. Prospective Resources have both an associated chance of
discovery and a chance of development. Prospective Resources are further subdivided in
accordance with the level of certainty associated with recoverable estimates assuming
their discovery and development and may be sub-classified based on project maturity.

UNRECOVERABLE is that portion of Discovered or Undiscovered Petroleum Initially-in-

Place quantities which is estimated, as of a given date, not to be recoverable by future
development projects. A portion of these quantities may become recoverable in the future as
commercial circumstances change or technological developments occur; the remaining
portion may never be recovered due to physical/chemical constraints represented by
subsurface interaction of fluids and reservoir rocks.

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Estimated Ultimate Recovery (EUR) is not a resources category, but a term that may be applied
to any accumulation or group of accumulations (discovered or undiscovered) to define those
quantities of petroleum estimated, as of a given date, to be potentially recoverable under defined
technical and commercial conditions plus those quantities already produced (total of recoverable
resources).

In specialized areas, such as basin potential studies, alternative terminology has been used; the
total resources may be referred to as Total Resource Base or Hydrocarbon Endowment. Total
recoverable or EUR may be termed Basin Potential. The sum of Reserves, Contingent
Resources, and Prospective Resources may be referred to as “remaining recoverable
resources.” When such terms are used, it is important that each classification component of the
summation also be provided. Moreover, these quantities should not be aggregated without due
consideration of the varying degrees of technical and commercial risk involved with their
classification.

1.2 Project-Based Resources Evaluations

The resources evaluation process consists of identifying a recovery project, or projects,
associated with a petroleum accumulation(s), estimating the quantities of Petroleum Initially-in-
Place, estimating that portion of those in-place quantities that can be recovered by each project,
and classifying the project(s) based on its maturity status or chance of commerciality.

This concept of a project-based classification system is further clarified by examining the primary
data sources contributing to an evaluation of net recoverable resources (see Figure 1-2) that may
be described as follows:

Net
RESERVOIR Recoverable PROJECT
(in-place volumes) Resources (production/cash flow)

Entitlement

PROPERTY
(ownership/contract terms)

Figure 1-2: Resources Evaluation Data Sources.

• The Reservoir (accumulation): Key attributes include the types and quantities of Petroleum
Initially-in-Place and the fluid and rock properties that affect petroleum recovery.

• The Project: Each project applied to a specific reservoir development generates a unique
production and cash flow schedule. The time integration of these schedules taken to the
project’s technical, economic, or contractual limit defines the estimated recoverable
resources and associated future net cash flow projections for each project. The ratio of EUR
to Total Initially-in-Place quantities defines the ultimate recovery efficiency for the
development project(s). A project may be defined at various levels and stages of maturity; it
may include one or many wells and associated production and processing facilities. One
project may develop many reservoirs, or many projects may be applied to one reservoir.

• The Property (lease or license area): Each property may have unique associated contractual
rights and obligations including the fiscal terms. Such information allows definition of each
participant’s share of produced quantities (entitlement) and share of investments, expenses,
and revenues for each recovery project and the reservoir to which it is applied. One property
may encompass many reservoirs, or one reservoir may span several different properties. A
property may contain both discovered and undiscovered accumulations.

4
In context of this data relationship, “project” is the primary element considered in this resources
classification, and net recoverable resources are the incremental quantities derived from each
project. Project represents the link between the petroleum accumulation and the decision-making
process. A project may, for example, constitute the development of a single reservoir or field, or
an incremental development for a producing field, or the integrated development of several fields
and associated facilities with a common ownership. In general, an individual project will represent
the level at which a decision is made whether or not to proceed (i.e., spend more money) and
there should be an associated range of estimated recoverable quantities for that project.

An accumulation or potential accumulation of petroleum may be subject to several separate and

distinct projects that are at different stages of exploration or development. Thus, an accumulation
may have recoverable quantities in several resource classes simultaneously.
In order to assign recoverable resources of any class, a development plan needs to be defined
consisting of one or more projects. Even for Prospective Resources, the estimates of recoverable
quantities must be stated in terms of the sales products derived from a development program
assuming successful discovery and commercial development. Given the major uncertainties
involved at this early stage, the development program will not be of the detail expected in later
stages of maturity. In most cases, recovery efficiency may be largely based on analogous
projects. In-place quantities for which a feasible project cannot be defined using current, or
reasonably forecast improvements in, technology are classified as Unrecoverable.

Not all technically feasible development plans will be commercial. The commercial viability of a
development project is dependent on a forecast of the conditions that will exist during the time
period encompassed by the project’s activities (see Commercial Evaluations, section 3.1).
“Conditions” include technological, economic, legal, environmental, social, and governmental
factors. While economic factors can be summarized as forecast costs and product prices, the
underlying influences include, but are not limited to, market conditions, transportation and
processing infrastructure, fiscal terms, and taxes.

The resource quantities being estimated are those volumes producible from a project as
measured according to delivery specifications at the point of sale or custody transfer (see
Reference Point, section 3.2.1). The cumulative production from the evaluation date forward to
cessation of production is the remaining recoverable quantity. The sum of the associated annual
net cash flows yields the estimated future net revenue. When the cash flows are discounted
according to a defined discount rate and time period, the summation of the discounted cash flows
is termed net present value (NPV) of the project (see Evaluation and Reporting Guidelines,
section 3.0).

The supporting data, analytical processes, and assumptions used in an evaluation should be
documented in sufficient detail to allow an independent evaluator or auditor to clearly understand
the basis for estimation and categorization of recoverable quantities and their classification.

2.0 Classification and Categorization Guidelines

To consistently characterize petroleum projects, evaluations of all resources should be conducted
in the context of the full classification system as shown in Figure 1-1. These guidelines reference
this classification system and support an evaluation in which projects are “classified” based on
their chance of commerciality (the vertical axis) and estimates of recoverable and marketable
quantities associated with each project are “categorized” to reflect uncertainty (the horizontal
axis). The actual workflow of classification vs. categorization varies with individual projects and is
often an iterative analysis process leading to a final report. “Report,” as used herein, refers to the
presentation of evaluation results within the business entity conducting the assessment and
should not be construed as replacing guidelines for public disclosures under guidelines
established by regulatory and/or other government agencies.

5
Additional background information on resources classification issues can be found in Chapter 2 of
the 2001 SPE/WPC/AAPG publication: “Guidelines for the Evaluation of Petroleum Reserves and
Resources,” hereafter referred to as the “2001 Supplemental Guidelines.”

2.1 Resources Classification

The basic classification requires establishment of criteria for a petroleum discovery and thereafter
the distinction between commercial and sub-commercial projects in known accumulations (and
hence between Reserves and Contingent Resources).

2.1.1 Determination of Discovery Status

A discovery is one petroleum accumulation, or several petroleum accumulations collectively, for
which one or several exploratory wells have established through testing, sampling, and/or logging
the existence of a significant quantity of potentially moveable hydrocarbons.
In this context, “significant” implies that there is evidence of a sufficient quantity of petroleum to
justify estimating the in-place volume demonstrated by the well(s) and for evaluating the potential
for economic recovery. Estimated recoverable quantities within such a discovered (known)
accumulation(s) shall initially be classified as Contingent Resources pending definition of projects
with sufficient chance of commercial development to reclassify all, or a portion, as Reserves.
Where in-place hydrocarbons are identified but are not considered currently recoverable, such
quantities may be classified as Discovered Unrecoverable, if considered appropriate for resource
management purposes; a portion of these quantities may become recoverable resources in the
future as commercial circumstances change or technological developments occur.

2.1.2 Determination of Commerciality

Discovered recoverable volumes (Contingent Resources) may be considered commercially
producible, and thus Reserves, if the entity claiming commerciality has demonstrated firm
intention to proceed with development and such intention is based upon all of the following
criteria:
• Evidence to support a reasonable timetable for development.
• A reasonable assessment of the future economics of such development projects meeting
defined investment and operating criteria:
• A reasonable expectation that there will be a market for all or at least the expected sales
quantities of production required to justify development.
• Evidence that the necessary production and transportation facilities are available or can be
made available:
• Evidence that legal, contractual, environmental and other social and economic concerns will
allow for the actual implementation of the recovery project being evaluated.

To be included in the Reserves class, a project must be sufficiently defined to establish its
commercial viability. There must be a reasonable expectation that all required internal and
external approvals will be forthcoming, and there is evidence of firm intention to proceed with
development within a reasonable time frame. A reasonable time frame for the initiation of
development depends on the specific circumstances and varies according to the scope of the
project. While 5 years is recommended as a benchmark, a longer time frame could be applied
where, for example, development of economic projects are deferred at the option of the producer
for, among other things, market-related reasons, or to meet contractual or strategic objectives. In
all cases, the justification for classification as Reserves should be clearly documented.

To be included in the Reserves class, there must be a high confidence in the commercial
producibility of the reservoir as supported by actual production or formation tests. In certain
cases, Reserves may be assigned on the basis of well logs and/or core analysis that indicate that

6
the subject reservoir is hydrocarbon-bearing and is analogous to reservoirs in the same area that
are producing or have demonstrated the ability to produce on formation tests.

2.1.3 Project Status and Commercial Risk

Evaluators have the option to establish a more detailed resources classification reporting system
that can also provide the basis for portfolio management by subdividing the chance of
commerciality axis according to project maturity. Such sub-classes may be characterized by
standard project maturity level descriptions (qualitative) and/or by their associated chance of
reaching producing status (quantitative).

As a project moves to a higher level of maturity, there will be an increasing chance that the
accumulation will be commercially developed. For Contingent and Prospective Resources, this
can further be expressed as a quantitative chance estimate that incorporates two key underlying
risk components:

• The chance that the potential accumulation will result in the discovery of petroleum. This is
referred to as the “chance of discovery.”
• Once discovered, the chance that the accumulation will be commercially developed is
referred to as the “chance of development.”

Thus, for an undiscovered accumulation, the “chance of commerciality” is the product of these
two risk components. For a discovered accumulation where the “chance of discovery” is 100%,
the “chance of commerciality” becomes equivalent to the “chance of development.”

2.1.3.1 Project Maturity Sub-Classes

As illustrated in Figure 2-1, development projects (and their associated recoverable quantities)
may be sub-classified according to project maturity levels and the associated actions (business
decisions) required to move a project toward commercial production.
Project Maturity
PRODUCTION Sub-classes

On Production
COMMERCIAL
TOTAL PETROLEUM INITIALLY-IN-PLACE (PIIP)

Approved for
RESERVES Development
Increasing Chance of Commerciality
DISCOVERED PIIP

Justified for
Development

Development Pending
SUB-COMMERCIAL

CONTINGENT Development Unclarified

RESOURCES or On Hold
Development
not Viable

UNRECOVERABLE

Prospect
UNDISCOVERED PIIP

PROSPECTIVE
RESOURCES Lead

Play

UNRECOVERABLE

Not to scale
Range of Uncertainty

Figure 2-1: Sub-classes based on Project Maturity.

7
Project Maturity terminology and definitions have been modified from the example provided in the
2001 Supplemental Guidelines, Chapter 2. Detailed definitions and guidelines for each Project
Maturity sub-class are provided in Table I. This approach supports managing portfolios of
opportunities at various stages of exploration and development and may be supplemented by
associated quantitative estimates of chance of commerciality. The boundaries between different
levels of project maturity may be referred to as “decision gates.”

Decisions within the Reserves class are based on those actions that progress a project through
final approvals to implementation and initiation of production and product sales. For Contingent
Resources, supporting analysis should focus on gathering data and performing analyses to clarify
and then mitigate those key conditions, or contingencies, that prevent commercial development.

For Prospective Resources, these potential accumulations are evaluated according to their
chance of discovery and, assuming a discovery, the estimated quantities that would be
recoverable under appropriate development projects. The decision at each phase is to undertake
further data acquisition and/or studies designed to move the project to a level of technical and
commercial maturity where a decision can be made to proceed with exploration drilling.

Evaluators may adopt alternative sub-classes and project maturity modifiers, but the concept of
increasing chance of commerciality should be a key enabler in applying the overall classification
system and supporting portfolio management.

2.1.3.2 Reserves Status

Once projects satisfy commercial risk criteria, the associated quantities are classified as
Reserves. These quantities may be allocated to the following subdivisions based on the funding
and operational status of wells and associated facilities within the reservoir development plan
(detailed definitions and guidelines are provided in Table 2):

• Developed Reserves are expected quantities to be recovered from existing wells and
facilities.
o Developed Producing Reserves are expected to be recovered from completion
intervals that are open and producing at the time of the estimate.
o Developed Non-Producing Reserves include shut-in and behind-pipe Reserves.
• Undeveloped Reserves are quantities expected to be recovered through future investments.

Where Reserves remain undeveloped beyond a reasonable timeframe, or have remained

undeveloped due to repeated postponements, evaluations should be critically reviewed to
document reasons for the delay in initiating development and justify retaining these quantities
within the Reserves class. While there are specific circumstances where a longer delay (see
Determination of Commerciality, section 2.1.2) is justified, a reasonable time frame is generally
considered to be less than 5 years.

Development and production status are of significant importance for project management. While
Reserves Status has traditionally only been applied to Proved Reserves, the same concept of
Developed and Undeveloped Status based on the funding and operational status of wells and
producing facilities within the development project are applicable throughout the full range of
Reserves uncertainty categories (Proved, Probable and Possible).

Quantities may be subdivided by Reserves Status independent of sub-classification by Project

Maturity. If applied in combination, Developed and/or Undeveloped Reserves quantities may be
identified separately within each Reserves sub-class (On Production, Approved for Development,
and Justified for Development).

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 2.1.3.3 Economic Status

Projects may be further characterized by their Economic Status. All projects classified as
Reserves must be economic under defined conditions (see Commercial Evaluations, section 3.1).
Based on assumptions regarding future conditions and their impact on ultimate economic viability,
projects currently classified as Contingent Resources may be broadly divided into two groups:

• Marginal Contingent Resources are those quantities associated with technically feasible
projects that are either currently economic or projected to be economic under reasonably
forecasted improvements in commercial conditions but are not committed for development
because of one or more contingencies.

• Sub-Marginal Contingent Resources are those quantities associated with discoveries for
which analysis indicates that technically feasible development projects would not be
economic and/or other contingencies would not be satisfied under current or reasonably
forecasted improvements in commercial conditions. These projects nonetheless should be
retained in the inventory of discovered resources pending unforeseen major changes in
commercial conditions.

Where evaluations are incomplete such that it is premature to clearly define ultimate chance of
commerciality, it is acceptable to note that project economic status is “undetermined.” Additional
economic status modifiers may be applied to further characterize recoverable quantities; for
example, non-sales (lease fuel, flare, and losses) may be separately identified and documented
in addition to sales quantities for both production and recoverable resource estimates (see also
Reference Point, section 3.2.1). Those discovered in-place volumes for which a feasible
development project cannot be defined using current, or reasonably forecast improvements in,
technology are classified as Unrecoverable.

Economic Status may be identified independently of, or applied in combination with, Project
Maturity sub-classification to more completely describe the project and its associated resources.

2.2 Resources Categorization

The horizontal axis in the Resources Classification (Figure 1.1) defines the range of uncertainty in
estimates of the quantities of recoverable, or potentially recoverable, petroleum associated with a
project. These estimates include both technical and commercial uncertainty components as
follows:
• The total petroleum remaining within the accumulation (in-place resources).
• That portion of the in-place petroleum that can be recovered by applying a defined
development project or projects.
• Variations in the commercial conditions that may impact the quantities recovered and sold
(e.g., market availability, contractual changes).

Where commercial uncertainties are such that there is significant risk that the complete project
(as initially defined) will not proceed, it is advised to create a separate project classified as
Contingent Resources with an appropriate chance of commerciality.

2.2.1 Range of Uncertainty

The range of uncertainty of the recoverable and/or potentially recoverable volumes may be
represented by either deterministic scenarios or by a probability distribution (see Deterministic
and Probabilistic Methods, section 4.2).

When the range of uncertainty is represented by a probability distribution, a low, best, and high
estimate shall be provided such that:

9
• There should be at least a 90% probability (P90) that the quantities actually recovered will
equal or exceed the low estimate.
• There should be at least a 50% probability (P50) that the quantities actually recovered will
equal or exceed the best estimate.
• There should be at least a 10% probability (P10) that the quantities actually recovered will
equal or exceed the high estimate.

When using the deterministic scenario method, typically there should also be low, best, and high
estimates, where such estimates are based on qualitative assessments of relative uncertainty
using consistent interpretation guidelines. Under the deterministic incremental (risk-based)
approach, quantities at each level of uncertainty are estimated discretely and separately (see
Category Definitions and Guidelines, section 2.2.2).

These same approaches to describing uncertainty may be applied to Reserves, Contingent

Resources, and Prospective Resources. While there may be significant risk that sub-commercial
and undiscovered accumulations will not achieve commercial production, it useful to consider the
range of potentially recoverable quantities independently of such a risk or consideration of the
resource class to which the quantities will be assigned.

2.2.2 Category Definitions and Guidelines

Evaluators may assess recoverable quantities and categorize results by uncertainty using the
deterministic incremental (risk-based) approach, the deterministic scenario (cumulative)
approach, or probabilistic methods. (see “2001 Supplemental Guidelines,” Chapter 2.5). In many
cases, a combination of approaches is used.

Use of consistent terminology (Figure 1.1) promotes clarity in communication of evaluation

results. For Reserves, the general cumulative terms low/best/high estimates are denoted as
1P/2P/3P, respectively. The associated incremental quantities are termed Proved, Probable and
Possible. Reserves are a subset of, and must be viewed within context of, the complete
resources classification system. While the categorization criteria are proposed specifically for
Reserves, in most cases, they can be equally applied to Contingent and Prospective Resources
conditional upon their satisfying the criteria for discovery and/or development.

For Contingent Resources, the general cumulative terms low/best/high estimates are denoted as
1C/2C/3C respectively. For Prospective Resources, the general cumulative terms low/best/high
estimates still apply. No specific terms are defined for incremental quantities within Contingent
and Prospective Resources.

Without new technical information, there should be no change in the distribution of technically
recoverable volumes and their categorization boundaries when conditions are satisfied sufficiently
to reclassify a project from Contingent Resources to Reserves. All evaluations require application
of a consistent set of forecast conditions, including assumed future costs and prices, for both
classification of projects and categorization of estimated quantities recovered by each project
(see Commercial Evaluations, section 3.1).

Table III presents category definitions and provides guidelines designed to promote consistency
in resource assessments. The following summarizes the definitions for each Reserves category in
terms of both the deterministic incremental approach and scenario approach and also provides
the probability criteria if probabilistic methods are applied.

• Proved Reserves are those quantities of petroleum, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be commercially recoverable,
from a given date forward, from known reservoirs and under defined economic conditions,
operating methods, and government regulations. If deterministic methods are used, the term
reasonable certainty is intended to express a high degree of confidence that the quantities

10
 will be recovered. If probabilistic methods are used, there should be at least a 90% probability
that the quantities actually recovered will equal or exceed the estimate.

• Probable Reserves are those additional Reserves which analysis of geoscience and
engineering data indicate are less likely to be recovered than Proved Reserves but more
certain to be recovered than Possible Reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of the estimated Proved plus
Probable Reserves (2P). In this context, when probabilistic methods are used, there should
be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P
estimate.

• Possible Reserves are those additional reserves which analysis of geoscience and
engineering data suggest are less likely to be recoverable than Probable Reserves. The total
quantities ultimately recovered from the project have a low probability to exceed the sum of
Proved plus Probable plus Possible (3P) Reserves, which is equivalent to the high estimate
scenario. In this context, when probabilistic methods are used, there should be at least a 10%
probability that the actual quantities recovered will equal or exceed the 3P estimate.

Based on additional data and updated interpretations that indicate increased certainty, portions of
Possible and Probable Reserves may be re-categorized as Probable and Proved Reserves.

Uncertainty in resource estimates is best communicated by reporting a range of potential results.

However, if it is required to report a single representative 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 assessment methods. It should be noted that under the deterministic incremental
(risk-based) approach, discrete estimates are made for each category, and they should not be
aggregated without due consideration of their associated risk (see “2001 Supplemental
Guidelines,” Chapter 2.5).

2.3 Incremental Projects

The initial resource assessment is based on application of a defined initial development project.
Incremental projects are designed to increase recovery efficiency and/or to accelerate production
through making changes to wells or facilities, infill drilling, or improved recovery. Such projects
should be classified according to the same criteria as initial projects. Related incremental
quantities are similarly categorized on certainty of recovery. The projected increased recovery
can be included in estimated Reserves if the degree of commitment is such that the project will be
developed and placed on production within a reasonable timeframe.

Circumstances where development will be significantly delayed should be clearly documented. If

there is significant project risk, forecast incremental recoveries may be similarly categorized but
should be classified as Contingent Resources (see Determination of Commerciality, section
2.1.2).

2.3.1 Workovers, Treatments, and Changes of Equipment

Incremental recovery associated with future workover, treatment (including hydraulic fracturing),
re-treatment, changes of equipment, or other mechanical procedures where such projects have
routinely been successful in analogous reservoirs may be classified as Developed or
Undeveloped Reserves depending on the magnitude of associated costs required (see Reserves
Status, section 2.1.3.2).

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2.3.2 Compression

Reduction in the backpressure through compression can increase the portion of in-place gas that
can be commercially produced and thus included in Reserves estimates. If the eventual
installation of compression was planned and approved as part of the original development plan,
incremental recovery is included in Undeveloped Reserves. However, if the cost to implement
compression is not significant (relative to the cost of a new well), the incremental quantities may
be classified as Developed Reserves. If compression facilities were not part of the original
approved development plan and such costs are significant, it should be treated as a separate
project subject to normal project maturity criteria.

2.3.3 Infill Drilling

Technical and commercial analyses may support drilling additional producing wells to reduce the
spacing beyond that utilized within the initial development plan, subject to government regulations
(if such approvals are required). Infill drilling may have the combined effect of increasing recovery
efficiency and accelerating production. Only the incremental recovery can be considered as
additional Reserves; this additional recovery may need to be reallocated to individual wells with
different interest ownerships.

2.3.4 Improved Recovery

Improved recovery is the additional petroleum obtained, beyond primary recovery, from naturally
occurring reservoirs by supplementing the natural reservoir performance. It includes
waterflooding, secondary or tertiary recovery processes, and any other means of supplementing
natural reservoir recovery processes.
Improved recovery projects must meet the same Reserves commerciality criteria as primary
recovery projects. There should be an expectation that the project will be economic and that the
entity has committed to implement the project in a reasonable time frame (generally within 5
years; further delays should be clearly justified).
The judgment on commerciality is based on pilot testing within the subject reservoir or by
comparison to a reservoir with analogous rock and fluid properties and where a similar
established improved recovery project has been successfully applied.

Incremental recoveries through improved recovery methods that have yet to be established
through routine, commercially successful applications are included as Reserves only after a
favorable production response from the subject reservoir from either (a) a representative pilot or
(b) an installed program, where the response provides support for the analysis on which the
project is based.

These incremental recoveries in commercial projects are categorized into Proved, Probable, and
Possible Reserves based on certainty derived from engineering analysis and analogous
applications in similar reservoirs.

2.4 Unconventional Resources

Two types of petroleum resources have been defined that may require different approaches for
their evaluations:

• Conventional resources exist in discrete petroleum accumulations related to a localized

geological structural feature and/or stratigraphic condition, typically with each accumulation
bounded by a downdip contact with an aquifer, and which is significantly affected by
hydrodynamic influences such as buoyancy of petroleum in water. The petroleum is
recovered through wellbores and typically requires minimal processing prior to sale.

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• Unconventional resources exist in petroleum accumulations that are pervasive throughout a
large area and that are not significantly affected by hydrodynamic influences (also called
“continuous-type deposits”). Examples include coalbed methane (CBM), basin-centered gas,
shale gas, gas hydrates, natural bitumen, and oil shale deposits. Typically, such
accumulations require specialized extraction technology (e.g., dewatering of CBM, massive
fracturing programs for shale gas, steam and/or solvents to mobilize bitumen for in-situ
recovery, and, in some cases, mining activities). Moreover, the extracted petroleum may
require significant processing prior to sale (e.g., bitumen upgraders).

For these petroleum accumulations that are not significantly affected by hydrodynamic influences,
reliance on continuous water contacts and pressure gradient analysis to interpret the extent of
recoverable petroleum may not be possible. Thus, there typically is a need for increased
sampling density to define uncertainty of in-place volumes, variations in quality of reservoir and
hydrocarbons, and their detailed spatial distribution to support detailed design of specialized
mining or in-situ extraction programs.

It is intended that the resources definitions, together with the classification system, will be
appropriate for all types of petroleum accumulations regardless of their in-place characteristics,
extraction method applied, or degree of processing required.

Similar to improved recovery projects applied to conventional reservoirs, successful pilots or

operating projects in the subject reservoir or successful projects in analogous reservoirs may be
required to establish a distribution of recovery efficiencies for non-conventional accumulations.
Such pilot projects may evaluate both extraction efficiency and the efficiency of unconventional
processing facilities to derive sales products prior to custody transfer.

3.0 Evaluation and Reporting Guidelines

The following guidelines are provided to promote consistency in project evaluations and reporting.
“Reporting” refers to the presentation of evaluation results within the business entity conducting
the evaluation and should not be construed as replacing guidelines for subsequent public
disclosures under guidelines established by regulatory and/or other government agencies, or any
current or future associated accounting standards.

3.1 Commercial Evaluations

Investment decisions are based on the entity’s view of future commercial conditions that may
impact the development feasibility (commitment to develop) and production/cash flow schedule of
oil and gas projects. Commercial conditions include, but are not limited to, assumptions of
financial conditions (costs, prices, fiscal terms, taxes), marketing, legal, environmental, social,
and governmental factors. Project value may be assessed in several ways (e.g., historical costs,
comparative market values); the guidelines herein apply only to evaluations based on cash flow
analysis. Moreover, modifying factors such contractual or political risks that may additionally
influence investment decisions are not addressed. (Additional detail on commercial issues can be
found in the “2001 Supplemental Guidelines,” Chapter 4.)

3.1.1 Cash-Flow-Based Resources Evaluations

Resources evaluations are based on estimates of future production and the associated cash flow
schedules for each development project. The sum of the associated annual net cash flows yields
the estimated future net revenue. When the cash flows are discounted according to a defined
discount rate and time period, the summation of the discounted cash flows is termed net present
value (NPV) of the project. The calculation shall reflect:

13
• The expected quantities of production projected over identified time periods.
• The estimated costs associated with the project to develop, recover, and produce the
quantities of production at its Reference Point (see section 3.2.1), including environmental,
abandonment, and reclamation costs charged to the project, based on the evaluator’s view of
the costs expected to apply in future periods.
• The estimated revenues from the quantities of production based on the evaluator’s view of
the prices expected to apply to the respective commodities in future periods including that
portion of the costs and revenues accruing to the entity.
• Future projected production and revenue related taxes and royalties expected to be paid by
the entity.
• A project life that is limited to the period of entitlement or reasonable expectation thereof.
• The application of an appropriate discount rate that reasonably reflects the weighted average
cost of capital or the minimum acceptable rate of return applicable to the entity at the time of
the evaluation.

While each organization may define specific investment criteria, a project is generally considered
to be “economic” if its “best estimate” case has a positive net present value under the
organization’s standard discount rate, or if at least has a positive undiscounted cash flow.

3.1.2 Economic Criteria

Evaluators must clearly identify the assumptions on commercial conditions utilized in the
evaluation and must document the basis for these assumptions.

The economic evaluation underlying the investment decision is based on the entity’s reasonable
forecast of future conditions, including costs and prices, which will exist during the life of the
project (forecast case). Such forecasts are based on projected changes to current conditions;
SPE defines current conditions as the average of those existing during the previous 12 months.
Alternative economic scenarios are considered in the decision process and, in some cases, to
supplement reporting requirements. Evaluators may examine a case in which current conditions
are held constant (no inflation or deflation) throughout the project life (constant case).

Evaluations may be modified to accommodate criteria imposed by regulatory agencies regarding

external disclosures. For example, these criteria may include a specific requirement that, if the
recovery were confined to the technically Proved Reserves estimate, the constant case should
still generate a positive cash flow. External reporting requirements may also specify alternative
guidance on current conditions (for example, year-end costs and prices).

There may be circumstances in which the project meets criteria to be classified as Reserves
using the forecast case but does not meet the external criteria for Proved Reserves. In these
specific circumstances, the entity may record 2P and 3P estimates without separately recording
Proved. As costs are incurred and development proceeds, the low estimate may eventually
satisfy external requirements, and Proved Reserves can then be assigned.
While SPE guidelines do not require that project financing be confirmed prior to classifying
projects as Reserves, this may be another external requirement. In many cases, loans are
conditional upon the same criteria as above; that is, the project must be economic based on
Proved Reserves only. In general, if there is not a reasonable expectation that loans or other
forms of financing (e.g., farm-outs) can be arranged such that the development will be initiated
within a reasonable timeframe, then the project should be classified as Contingent Resources. If
financing is reasonably expected but not yet confirmed, the project may be classified as
Reserves, but no Proved Reserves may be reported as above.

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3.1.3 Economic Limit

Economic limit is defined as the production rate beyond which the net operating cash flows from a
project, which may be an individual well, lease, or entire field, are negative, a point in time that
defines the project’s economic life. Operating costs should be based on the same type of
projections as used in price forecasting. Operating costs should include only those costs that are
incremental to the project for which the economic limit is being calculated (i.e., only those cash
costs that will actually be eliminated if project production ceases should be considered in the
calculation of economic limit). Operating costs should include fixed property-specific overhead
charges if these are actual incremental costs attributable to the project and any production and
property taxes but, for purposes of calculating economic limit, should exclude depreciation,
abandonment and reclamation costs, and income tax, as well as any overhead above that
required to operate the subject property itself. Operating costs may be reduced, and thus project
life extended, by various cost-reduction and revenue-enhancement approaches, such as sharing
of production facilities, pooling maintenance contracts, or marketing of associated non-
hydrocarbons (see Associated Non-Hydrocarbon Components, section 3.2.4).

Interim negative project net cash flows may be accommodated in short periods of low product
prices or major operational problems, provided that the longer-term forecasts must still indicate
positive economics.

3.2 Production Measurement

In general, the marketable product, as measured according to delivery specifications at a defined
Reference Point, provides the basis for production quantities and resources estimates. The
following operational issues should be considered in defining and measuring production. While
referenced specifically to Reserves, the same logic would be applied to projects forecast to
develop Contingent and Prospective Resources conditional on discovery and development.
(Additional detail on operational issues that impact resources estimation can be found in the
“2001 Supplemental Guidelines,” Chapter 3.)

3.2.1 Reference Point

Reference Point is a defined location(s) in the production chain where the produced quantities are
measured or assessed. The Reference Point is typically the point of sale to third parties or where
custody is transferred to the entity’s downstream operations. Sales production and estimated
Reserves are normally measured and reported in terms of quantities crossing this point over the
period of interest.

The Reference Point may be defined by relevant accounting regulations in order to ensure that
the Reference Point is the same for both the measurement of reported sales quantities and for
the accounting treatment of sales revenues. This ensures that sales quantities are stated
according to their delivery specifications at a defined price. In integrated projects, the appropriate
price at the Reference Point may need to be determined using a netback calculation.

Sales quantities are equal to raw production less non-sales quantities, being those quantities
produced at the wellhead but not available for sales at the Reference Point. Non-sales quantities
include petroleum consumed as fuel, flared, or lost in processing, plus non-hydrocarbons that
must be removed prior to sale; each of these may be allocated using separate Reference Points
but when combined with sales, should sum to raw production. Sales quantities may need to be
adjusted to exclude components added in processing but not derived from raw production. Raw
production measurements are necessary and form the basis of engineering calculations (e.g.,
production performance analysis) based on total reservoir voidage.

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3.2.2 Lease Fuel

Lease fuel is that portion of produced natural gas, crude oil, or condensate consumed as fuel in
production and lease plant operations.

For consistency, lease fuel should be treated as shrinkage and is not included in sales quantities
or resource estimates. However, some regulatory guidelines may allow lease fuel to be included
in Reserves estimates where it replaces alternative sources of fuel and/or power that would be
purchased in their absence. Where claimed as Reserves, such fuel quantities should be reported
separately from sales, and their value must be included as an operating expense. Flared gas and
oil and other losses are always treated as shrinkage and are not included in either product sales
or Reserves.

3.2.3 Wet or Dry Natural Gas

The Reserves for wet or dry natural gas should be considered in the context of the specifications
of the gas at the agreed Reference Point. Thus, for gas that is sold as wet gas, the volume of the
wet gas would be reported, and there would be no associated or extracted hydrocarbon liquids
reported separately. It would be expected that the corresponding enhanced value of the wet gas
would be reflected in the sales price achieved for such gas.

When liquids are extracted from the gas prior to sale and the gas is sold in dry condition, then the
dry gas volume and the extracted liquid volumes, whether condensate and/or natural gas liquids,
should be accounted for separately in resource assessments. Any hydrocarbon liquids separated
from the wet gas subsequent to the agreed Reference Point would not be reported as Reserves.

3.2.4 Associated Non-Hydrocarbon Components

In the event that non-hydrocarbon components are associated with production, the reported
quantities should reflect the agreed specifications of the petroleum product at the Reference
Point. Correspondingly, the accounts will reflect the value of the petroleum product at the
Reference Point. If it is required to remove all or a portion of non-hydrocarbons prior to delivery,
the Reserves and production should reflect only the residual hydrocarbon product.

Even if the associated non-hydrocarbon component (e.g., helium, sulfur) that is removed prior to
the Reference Point is subsequently and separately marketed, these quantities are not included
in petroleum production or Reserves. The revenue generated by the sale of non-hydrocarbon
products may be included in the economic evaluation of a project.

3.2.5 Natural Gas Re-Injection

Natural gas production can be re-injected into a reservoir for a number of reasons and under a
variety of conditions. It can be re-injected into the same reservoir or into other reservoirs located
on the same property for recycling, pressure maintenance, miscible injection, or other enhanced
oil recovery processes. In such cases, assuming that the gas will eventually be produced and
sold, the gas volume estimated as eventually recoverable can be included as Reserves.

If gas volumes are to be included as Reserves, they must meet the normal criteria laid down in
the definitions including the existence of a viable development, transportation, and sales
marketing plan. Gas volumes should be reduced for losses associated with the re-injection and
subsequent recovery process. Gas volumes injected into a reservoir for gas disposal with no
committed plan for recovery are not classified as Reserves. Gas volumes purchased for injection
and later recovered are not classified as Reserves.

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3.2.6 Underground Natural Gas Storage

Natural gas injected into a gas storage reservoir to be recovered at a later period (e.g., to meet
peak market demand periods) should not be included as Reserves.

The gas placed in the storage reservoir may be purchased or may originate from prior production.
It is important to distinguish injected gas from any remaining native recoverable volumes in the
reservoir. On commencing gas production, its allocation between native gas and injected gas
may be subject to local regulatory and accounting rulings. Native gas production would be drawn
against the original field Reserves. The uncertainty with respect to original field volumes remains
with the native reservoir gas and not the injected gas.

There may be occasions, such as gas acquired through a production payment, in which gas is
transferred from one lease or field to another without a sale or custody transfer occurring. In such
cases, the re-injected gas could be included with the native reservoir gas as Reserves. The same
principles regarding separation of native resources from injected quantities would apply to
underground oil storage.

3.2.7 Production Balancing

Reserves estimates must be adjusted for production withdrawals. This may be a complex
accounting process when the allocation of production among project participants is not aligned
with their entitlement to Reserves. Production overlift or underlift can occur in oil production
records because of the necessity for participants to lift their production in parcel sizes or cargo
volumes to suit available shipping schedules as agreed among the parties. Similarly, an
imbalance in gas deliveries can result from the participants having different operating or
marketing arrangements that prevent gas volumes sold from being equal to entitlement share
within a given time period.

Based on production matching the internal accounts, annual production should generally be equal
to the liftings actually made by the participant and not on the production entitlement for the year.
However, actual production and entitlements must be reconciled in Reserves assessments.
Resulting imbalances must be monitored over time and eventually resolved before project
abandonment.

3.3 Resources Entitlement and Recognition

While assessments are conducted to establish estimates of the total Petroleum Initially-in-Place
and that portion recovered by defined projects, the allocation of sales quantities, costs, and
revenues impacts the project economics and commerciality. This allocation is governed by the
applicable contracts between the mineral owners (lessors) and contractors (lessees) and is
generally referred to as “entitlement.” For publicly traded companies, securities regulators may
set criteria regarding the classes and categories that can be “recognized” in external disclosures.

Entitlements must ensure that the recoverable resources claimed/reported by individual

stakeholders sum to the total recoverable resources; that is, there are none missing or duplicated
in the allocation process. (The “2001 Supplemental Guidelines,” Chapter 9, addresses issues of
Reserves recognition under production-sharing and non-traditional agreements.)

3.3.1 Royalty

Royalty refers to payments that are due to the host government or mineral owner (lessor) in
return for depletion of the reservoirs by the producer (lessee/contractor) having access to the
petroleum resources.

17
Many agreements allow for the lessee/contractor to lift the royalty volumes and sell them on
behalf of, and pay the proceeds to, the royalty owner/lessor. Some agreements provide for the
royalty to be taken only in-kind by the royalty owner. In either case, royalty volumes must be
deducted from the lessee’s entitlement to resources. In some agreements, royalties owned by the
host government are actually treated as taxes to be paid in cash. In such cases, the equivalent
royalty volumes are controlled by the contractor who may (subject to regulatory guidance) elect to
report these volumes as Reserves and/or Contingent Resources with appropriate offsets
(increase in operating expense) to recognize the financial liability of the royalty obligation.

Conversely, if a company owns a royalty or equivalent interest of any type in a project, the related
quantities can be included in Resources entitlements.

3.3.2 Production-Sharing Contract Reserves

Production-Sharing Contracts (PSCs) of various types replace conventional tax-royalty systems

in many countries. Under the PSC terms, the producers have an entitlement to a portion of the
production. This entitlement, often referred to as “net entitlement” or “net economic interest,” is
estimated using a formula based on the contract terms incorporating project costs (cost oil) and
project profits (profit oil).

Although ownership of the production invariably remains with the government authority up to the
export point of the project, the producers may take title to their share of the net entitlement at that
point and may claim that share as their Reserves.

Risked-Service Contracts (RSCs) are similar to PSCs, but in this case, the producers are paid in
cash rather than in production. As with PSCs, the Reserves claimed are based on the parties’ net
economic interest. Care needs to be taken to distinguish between an RSC and a “Pure Service
Contract.” Reserves can be claimed in an RSC on the basis that the producers are exposed to
capital at risk, whereas no Reserves can be claimed for Pure Service Contracts because there
are no market risks and the producers act as contractors.

Unlike traditional royalty-lease agreements, the cost recovery system in production-sharing, risk-
service, and other related contracts typically reduce the production share and hence Reserves
obtained by a contractor in periods of high price and increase volumes in periods of low price.
While this ensures cost recovery, it introduces a significant price-related volatility in annual
Reserves estimates under cases using “current” economic conditions. Under a defined “forecast
conditions case,” the future relationship of price to Reserves entitlement is known.

The treatment of taxes and the accounting procedures used can also have a significant impact on
the Reserves recognized and production reported from these contracts.

3.3.3 Contract Extensions or Renewals

As production-sharing or other types of agreements approach maturity, they can be extended by

negotiation for contract extensions, by the exercise of options to extend, or by other means.

Reserves should not be claimed for those volumes that will be produced beyond the ending date
of the current agreement unless there is reasonable expectation that an extension, a renewal, or
a new contract will be granted. Such reasonable expectation may be based on the historical
treatment of similar agreements by the license-issuing jurisdiction. Otherwise, forecast production
beyond the contract term should be classified as Contingent Resources with an associated
reduced chance of commercialization. Moreover, it may not be reasonable to assume that the
fiscal terms in a negotiated extension will be similar to existing terms.

18
Similar logic should be applied where gas sales agreements are required to ensure adequate
markets. Reserves should not be claimed for those quantities that will be produced beyond those
specified in the current agreement or reasonably forecast to be included in future agreements.

In either of the above cases, where the risk of cessation of rights to produce or inability to secure
gas contracts is not considered significant, evaluators may choose to incorporate the uncertainty
by categorizing quantities to be recovered beyond the current contract as Probable or Possible
Reserves.

4.0 Estimating Recoverable Quantities

Assuming that projects have been classified according to their project maturity, the estimation of
associated recoverable quantities under a defined project and their assignment to uncertainty
categories may be based on one or a combination of analytical procedures. Such procedures
may be applied using an incremental (risk-based) and/or scenario approach; moreover, the
method of assessing relative uncertainty in these estimates of recoverable quantities may employ
both deterministic and probabilistic methods.

4.1 Analytical Procedures

The analytical procedures for estimating recoverable quantities fall into three broad categories:
(a) analogy, (b) volumetric estimates, and (c) performance-based estimates, which include
material balance, production decline, and other production performance analyses. Reservoir
simulation may be used in either volumetric or performance-based analyses. Pre- and early post-
discovery assessments are typically made with analog field/project data and volumetric
estimation. After production commences and production rates and pressure information become
available, performance-based methods can be applied. Generally, the range of EUR estimates is
expected to decrease as more information becomes available, but this is not always the case.

In each procedural method, results are not a single quantity of remaining recoverable petroleum,
but rather a range that reflects the underlying uncertainties in both the in-place volumes and the
recovery efficiency of the applied development project. By applying consistent guidelines (see
Resources Categorization, section 2.2.), evaluators can define remaining recoverable quantities
using either the incremental or cumulative scenario approach. The confidence in assessment
results generally increases when the estimates are supported by more than one analytical
procedure.

4.1.1 Analogs

Analogs are widely used in resources estimation, particularly in the exploration and early
development stages, when direct measurement information is limited. The methodology is based
on the assumption that the analogous reservoir is comparable to the subject reservoir regarding
reservoir and fluid properties that control ultimate recovery of petroleum. By selecting appropriate
analogs, where performance data based on comparable development plans (including well type,
well spacing and stimulation) are available, a similar production profile may be forecast.

Analogous reservoirs are defined by features and characteristics including, but not limited to,
approximate depth, pressure, temperature, reservoir drive mechanism, original fluid content,
reservoir fluid gravity, reservoir size, gross thickness, pay thickness, net-to-gross ratio, lithology,
heterogeneity, porosity, permeability, and development plan. Analogous reservoirs are formed by
the same, or very similar, processes with regard to sedimentation, diagenesis, pressure,
temperature, chemical and mechanical history, and structural deformation.

19
Comparison to several analogs may improve the range of uncertainty in estimated recoverable
quantities from the subject reservoir. While reservoirs in the same geographic area and of the
same age typically provide better analogs, such proximity alone may not be the primary
consideration. In all cases, evaluators should document the similarities and differences between
the analog and the subject reservoir/project. Review of analog reservoir performance is useful in
quality assurance of resource assessments at all stages of development.

4.1.2 Volumetric Estimate

This procedure uses reservoir rock and fluid properties to calculate hydrocarbons in-place and
then estimate that portion that will be recovered by a specific development project(s). Key
uncertainties affecting in-place volumes include:

• Reservoir geometry and trap limits that impact gross rock volume.
• Geological characteristics that define pore volume and permeability distribution.
• Elevation of fluid contacts.
• Combinations of reservoir quality, fluid types, and contacts that control fluid saturations.

The gross rock volume of interest is that for the total reservoir. While spatial distribution and
reservoir quality impact recovery efficiency, the calculation of in-place petroleum often uses
average net-to-gross ratio, porosity, and fluid saturations. In more heterogeneous reservoirs,
increased well density may be required to confidently assess and categorize resources.

Given estimates of the in-place petroleum, that portion that can be recovered by a defined set of
wells and operating conditions must then be estimated based on analog field performance and/or
simulation studies using available reservoir information. Key assumptions must be made
regarding reservoir drive mechanisms.

The estimates of recoverable quantities must reflect uncertainties not only in the petroleum in-
place but also in the recovery efficiency of the development project(s) applied to the specific
reservoir being studied.

Additionally, geostatistical methods can be used to preserve spatial distribution information and
incorporate it in subsequent reservoir simulation applications. Such processes may yield
improved estimates of the range of recoverable quantities. Incorporation of seismic analyses
typically improves the underlying reservoir models and yields more reliable resource estimates.
[Refer to the “2001 SPE Supplemental Guidelines” for more detailed discussion of geostatistics
(Chapter 7) and seismic applications (Chapter 8)].

4.1.3 Material Balance

Material balance methods to estimate recoverable quantities involve the analysis of pressure
behavior as reservoir fluids are withdrawn. In ideal situations, such as depletion-drive gas
reservoirs in homogeneous, high-permeability reservoir rocks and where sufficient and high
quality pressure data is available, estimation based on material balance may provide very reliable
estimates of ultimate recovery at various abandonment pressures. In complex situations, such as
those involving water influx, compartmentalization, multiphase behavior, and multilayered or low-
permeability reservoirs, material balance estimates alone may provide erroneous results.
Evaluators should take care to accommodate the complexity of the reservoir and its pressure
response to depletion in developing uncertainty profiles for the applied recovery project.

Computer reservoir modeling or reservoir simulation can be considered a sophisticated form of

material balance analysis. While such modeling can be a reliable predictor of reservoir behavior
under a defined development program, the reliability of input rock properties, reservoir geometry,
relative permeability functions, and fluid properties are critical. Predictive models are most reliable

20
in estimating recoverable quantities when there is sufficient production history to validate the
model through history matching.

4.1.4 Production Performance Analysis

Analysis of the change in production rates and production fluids ratios vs. time and vs. cumulative
production as reservoir fluids are withdrawn provides valuable information to predict ultimate
recoverable quantities. In some cases, before decline in production rates is apparent, trends in
performance indicators such as gas/oil ratio (GOR), water/oil ratio (WOR), condensate/gas ratio
(CGR), and bottomhole or flowing pressures can be extrapolated to an economic limit condition to
estimate reserves.

Reliable results require a sufficient period of stable operating conditions after wells in a reservoir
have established drainage areas. In estimating recoverable quantities, evaluators must consider
complicating factors affecting production performance behavior, such as variable reservoir and
fluid properties, transient vs. stabilized flow, changes in operating conditions, interference effects,
and depletion mechanisms. In early stages of depletion, there may be significant uncertainty in
both the ultimate performance profile and the commercial factors that impact abandonment rate.
Such uncertainties should be reflected in the resources categorization. For very mature
reservoirs, the future production forecast may be sufficiently well defined that the remaining
uncertainty in the technical profile is not significant; in such cases, the “best estimate” 2P
scenario may also be used for the 1P and 3P production forecasts. However, there may still be
commercial uncertainties that will impact the abandonment rate, and these should be
accommodated in the resources categorization.

4.2 Deterministic and Probabilistic Methods

Regardless of the analytical procedure used, resource estimates may be prepared using either
deterministic or probabilistic methods. A deterministic estimate is a single discrete scenario within
a range of outcomes that could be derived by probabilistic analysis.

In the deterministic method, a discrete value or array of values for each parameter is selected
based on the estimator’s choice of the values that are most appropriate for the corresponding
resource category. A single outcome of recoverable quantities is derived for each deterministic
increment or scenario.
In the probabilistic method, the estimator defines a distribution representing the full range of
possible values for each input parameter. These distributions may be randomly sampled (typically
using Monte Carlo simulation software) to compute a full range and distribution of potential
outcome of results of recoverable quantities (see “2001 Supplemental Guidelines,” Chapter 5, for
more detailed discussion of probabilistic reserves estimation procedures). This approach is most
often applied to volumetric resource calculations in the early phases of an exploitation and
development projects. The Resources Categorization guidelines include criteria that provide
specific limits to parameters associated with each category. Moreover, the resource analysis
must consider commercial uncertainties. Accordingly, when probabilistic methods are used,
constraints on parameters may be required to ensure that results are not outside the range
imposed by the category deterministic guidelines and commercial uncertainties.

Deterministic volumes are estimated for discrete increments and defined scenarios. While
deterministic estimates may have broadly inferred confidence levels, they do not have associated
quantitatively defined probabilities. Nevertheless, the ranges of the probability guidelines
established for the probabilistic method (see Range of Uncertainty, section 2.2.1) influence the
amount of uncertainty generally inferred in the estimate derived from the deterministic method.
Both deterministic and probabilistic methods may be used in combination to ensure that results of
either method are reasonable.

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4.2.1 Aggregation Methods

Oil and gas quantities are generally estimated and categorized according to certainty of recovery
within individual reservoirs or portions of reservoirs; this is referred to as the “reservoir level”
assessment. These estimates are summed to arrive at estimates for fields, properties, and
projects. Further summation is applied to yield totals for areas, countries, and companies; these
are generally referred to as “resource reporting levels.” The uncertainty distribution of the
individual estimates at each of these levels may differ widely, depending on the geological
settings and the maturity of the resources. This cumulative summation process is generally
referred to as “aggregation.”

Two general methods of aggregation may be applied: arithmetic summation of estimates by

category and statistical aggregation of uncertainty distributions. There is typically significant
divergence in results from applying these alternative methods. In statistical aggregation, except in
the rare situation when all the reservoirs being aggregated are totally dependent, the P90 (high
degree of certainty) quantities from the aggregate are always greater than the arithmetic sum of
the reservoir level P90 quantities, and the P10 (low degree of certainty) of the aggregate is
always less than the arithmetic sum P10 quantities assessed at the reservoir level. This “portfolio
effect” is the result of the central limit theorem in statistical analysis. Note that the mean
(arithmetic average) of the sums is equal to the sum of the means; that is, there is no portfolio
effect in aggregating mean values.

In practice, there is likely to be a large degree of dependence between reservoirs in the same
field, and such dependencies must be incorporated in the probabilistic calculation. When
dependency is present and not accounted for, probabilistic aggregation will overestimate the low
estimate result and underestimate the high estimate result. (Aggregation of Reserves is
discussed in Chapter 6 of the “2001 Supplemental Guidelines.”)
The aggregation methods utilized depends on the business purpose. It is recommended that for
reporting purposes, assessment results should not incorporate statistical aggregation beyond the
field, property, or project level. Results reporting beyond this level should use arithmetic
summation by category but should caution that the aggregate Proved may be a very conservative
estimate and aggregate 3P may be very optimistic depending on the number of items in the
aggregate. Aggregates of 2P results typically have less portfolio effect that may not be significant
in mature properties where the statistical median approaches the mean of the resulting
distribution.
Various techniques are available to aggregate deterministic and/or probabilistic field, property, or
project assessment results for detailed business unit or corporate portfolio analyses where the
results incorporate the benefits of portfolio size and diversification. Again, aggregation should
incorporate degree of dependency. Where the underlying analyses are available, comparison of
arithmetic and statistical aggregation results may be valuable in assessing impact of the portfolio
effect. Whether deterministic or probabilistic methods are used, care should be taken to avoid
systematic bias in the estimation process.

It is recognized that the monetary value associated with these recoveries is dependent on the
production and cash flow schedules for each project; thus, aggregate distributions of recoverable
quantities may not be a direct indication of corresponding uncertainty distributions of aggregate
value.

4.2.1.1 Aggregating Resources Classes

Petroleum quantities classified as Reserves, Contingent Resources, or Prospective Resources

should not be aggregated with each other without due consideration of the significant differences
in the criteria associated with their classification. In particular, there may be a significant risk that

22
accumulations containing Contingent Resources and/ or Prospective Resources will not achieve
commercial production.

Where the associated discovery and commerciality risks have been quantitatively defined,
statistical techniques may be applied to incorporate individual project risk estimates in portfolio
analysis of volume and value.

23
 Table 1: Recoverable Resources Classes and Sub-Classes

Class/Sub-Class Definition Guidelines

Reserves Reserves are those quantities Reserves must satisfy four criteria: they must be discovered,
of petroleum anticipated to be recoverable, commercial, and remaining based on the
commercially recoverable by development project(s) applied. Reserves are further subdivided in
application of development accordance with the level of certainty associated with the estimates
projects to known and may be sub-classified based on project maturity and/or
accumulations from a given characterized by their development and production status.
date forward under defined
conditions. To be included in the Reserves class, a project must be sufficiently
defined to establish its commercial viability. There must be a
reasonable expectation that all required internal and external
approvals will be forthcoming, and there is evidence of firm
intention to proceed with development within a reasonable time
frame.
A reasonable time frame for the initiation of development depends
on the specific circumstances and varies according to the scope of
the project. While 5 years is recommended as a benchmark, a
longer time frame could be applied where, for example,
development of economic projects are deferred at the option of the
producer for, among other things, market-related reasons, or to
meet contractual or strategic objectives. In all cases, the
justification for classification as Reserves should be clearly
documented.
To be included in the Reserves class, there must be a high
confidence in the commercial producibility of the reservoir as
supported by actual production or formation tests. In certain cases,
Reserves may be assigned on the basis of well logs and/or core
analysis that indicate that the subject reservoir is hydrocarbon-
bearing and is analogous to reservoirs in the same area that are
producing or have demonstrated the ability to produce on formation
tests.

On Production The development project is The key criterion is that the project is receiving income from sales,
currently producing and selling rather than the approved development project necessarily being
petroleum to market. complete. This is the point at which the project “chance of
commerciality” can be said to be 100%.

The project “decision gate” is the decision to initiate commercial

production from the project.

Approved for All necessary approvals have At this point, it must be certain that the development project is
Development been obtained, capital funds going ahead. The project must not be subject to any contingencies
have been committed, and such as outstanding regulatory approvals or sales contracts.
implementation of the Forecast capital expenditures should be included in the reporting
development project is under entity’s current or following year’s approved budget.
way.
The project “decision gate” is the decision to start investing capital
in the construction of production facilities and/or drilling
development wells.

24
Class/Sub-Class Definition Guidelines
Justified for Implementation of the In order to move to this level of project maturity, and hence have
Development development project is justified reserves associated with it, the development project must be
on the basis of reasonable commercially viable at the time of reporting, based on the reporting
forecast commercial conditions entity’s assumptions of future prices, costs, etc. (“forecast case”)
at the time of reporting, and and the specific circumstances of the project. Evidence of a firm
there are reasonable intention to proceed with development within a reasonable time
expectations that all necessary frame will be sufficient to demonstrate commerciality. There should
approvals/contracts will be be a development plan in sufficient detail to support the
obtained. assessment of commerciality and a reasonable expectation that
any regulatory approvals or sales contracts required prior to project
implementation will be forthcoming. Other than such
approvals/contracts, there should be no known contingencies that
could preclude the development from proceeding within a
reasonable timeframe (see Reserves class).

The project “decision gate” is the decision by the reporting entity

and its partners, if any, that the project has reached a level of
technical and commercial maturity sufficient to justify proceeding
with development at that point in time.

Contingent Those quantities of petroleum Contingent Resources may include, for example, projects for which
Resources estimated, as of a given date, there are currently no viable markets, or where commercial
to be potentially recoverable recovery is dependent on technology under development, or where
from known accumulations by evaluation of the accumulation is insufficient to clearly assess
application of development commerciality. Contingent Resources are further categorized in
projects, but which are not accordance with the level of certainty associated with the estimates
currently considered to be and may be sub-classified based on project maturity and/or
commercially recoverable due characterized by their economic status.
to one or more contingencies.

Development A discovered accumulation The project is seen to have reasonable potential for eventual
Pending where project activities are commercial development, to the extent that further data acquisition
ongoing to justify commercial (e.g. drilling, seismic data) and/or evaluations are currently ongoing
development in the with a view to confirming that the project is commercially viable and
foreseeable future. providing the basis for selection of an appropriate development
plan. The critical contingencies have been identified and are
reasonably expected to be resolved within a reasonable time
frame. Note that disappointing appraisal/evaluation results could
lead to a re-classification of the project to “On Hold” or “Not
Viable” status.
The project “decision gate” is the decision to undertake further
data acquisition and/or studies designed to move the project to a
level of technical and commercial maturity at which a decision can
be made to proceed with development and production.

25
Class/Sub-Class Definition Guidelines
Development A discovered accumulation The project is seen to have potential for eventual commercial
Unclarified or on where project activities are on development, but further appraisal/evaluation activities are on hold
Hold hold and/or where justification pending the removal of significant contingencies external to the
as a commercial development project, or substantial further appraisal/evaluation activities are
may be subject to significant required to clarify the potential for eventual commercial
delay. development. Development may be subject to a significant time
delay. Note that a change in circumstances, such that there is no
longer a reasonable expectation that a critical contingency can be
removed in the foreseeable future, for example, could lead to a re-
classification of the project to “Not Viable” status.
The project “decision gate” is the decision to either proceed with
additional evaluation designed to clarify the potential for eventual
commercial development or to temporarily suspend or delay further
activities pending resolution of external contingencies.

Development Not A discovered accumulation for The project is not seen to have potential for eventual commercial
Viable which there are no current development at the time of reporting, but the theoretically
plans to develop or to acquire recoverable quantities are recorded so that the potential
additional data at the time due opportunity will be recognized in the event of a major change in
to limited production potential. technology or commercial conditions.
The project “decision gate” is the decision not to undertake any
further data acquisition or studies on the project for the foreseeable
future.
Those quantities of petroleum Potential accumulations are evaluated according to their chance of
Prospective which are estimated, as of a
Resources discovery and, assuming a discovery, the estimated quantities that
given date, to be potentially would be recoverable under defined development projects. It is
recoverable from undiscovered recognized that the development programs will be of significantly
accumulations. less detail and depend more heavily on analog developments in
the earlier phases of exploration.

Prospect A project associated with a Project activities are focused on assessing the chance of discovery
potential accumulation that is and, assuming discovery, the range of potential recoverable
sufficiently well defined to quantities under a commercial development program.
represent a viable drilling
target.
Lead A project associated with a Project activities are focused on acquiring additional data and/or
potential accumulation that is undertaking further evaluation designed to confirm whether or not
currently poorly defined and the lead can be matured into a prospect. Such evaluation includes
requires more data acquisition the assessment of the chance of discovery and, assuming
and/or evaluation in order to discovery, the range of potential recovery under feasible
be classified as a prospect. development scenarios.

Play A project associated with a Project activities are focused on acquiring additional data and/or
prospective trend of potential undertaking further evaluation designed to define specific leads or
prospects, but which requires prospects for more detailed analysis of their chance of discovery
more data acquisition and/or and, assuming discovery, the range of potential recovery under
evaluation in order to define hypothetical development scenarios.
specific leads or prospects.

26
 Table 2: Reserves Status Definitions and Guidelines

Status Definition Guidelines

Developed Reserves are Reserves are considered developed only after the necessary
Developed expected quantities to be
Reserves equipment has been installed, or when the costs to do so are
recovered from existing wells relatively minor compared to the cost of a well. Where required
and facilities. facilities become unavailable, it may be necessary to reclassify
Developed Reserves as Undeveloped. Developed Reserves may
be further sub-classified as Producing or Non-Producing.

Developed Developed Producing Improved recovery reserves are considered producing only after
Producing Reserves are expected to be the improved recovery project is in operation.
Reserves recovered from completion
intervals that are open and
producing at the time of the
estimate.

Developed Non- Developed Non-Producing Shut-in Reserves are expected to be recovered from (1)
Producing Reserves include shut-in and completion intervals which are open at the time of the estimate but
Reserves behind-pipe Reserves. which have not yet started producing, (2) wells which were shut-in
for market conditions or pipeline connections, or (3) wells not
capable of production for mechanical reasons. Behind-pipe
Reserves are expected to be recovered from zones in existing
wells which will require additional completion work or future re-
completion prior to start of production.

In all cases, production can be initiated or restored with relatively

low expenditure compared to the cost of drilling a new well.

Undeveloped Reserves are (1) from new wells on undrilled acreage in known accumulations,
Undeveloped quantities expected to be
Reserves (2) from deepening existing wells to a different (but known)
recovered through future reservoir, (3) from infill wells that will increase recovery, or (4)
investments: where a relatively large expenditure (e.g. when compared to the
cost of drilling a new well) is required to (a) recomplete an existing
well or (b) install production or transportation facilities for primary or
improved recovery projects.

27
 Table 3: Reserves Category Definitions and Guidelines
Category Definition Guidelines
Proved Reserves are those If deterministic methods are used, the term reasonable certainty is
Proved quantities of petroleum, which intended to express a high degree of confidence that the quantities
Reserves by analysis of geoscience and will be recovered. If probabilistic methods are used, there should
engineering data, can be be at least a 90% probability that the quantities actually recovered
estimated with reasonable will equal or exceed the estimate.
certainty to be commercially
recoverable, from a given date The area of the reservoir considered as Proved includes (1) the
forward, from known reservoirs area delineated by drilling and defined by fluid contacts, if any, and
and under defined economic (2) adjacent undrilled portions of the reservoir that can reasonably
conditions, operating methods, be judged as continuous with it and commercially productive on the
and government regulations. basis of available geoscience and engineering data.

In the absence of data on fluid contacts, Proved quantities in a

reservoir are limited by the lowest known hydrocarbon (LKH) as
seen in a well penetration unless otherwise indicated by definitive
geoscience, engineering, or performance data. Such definitive
information may include pressure gradient analysis and seismic
indicators. Seismic data alone may not be sufficient to define fluid
contacts for Proved reserves (see “2001 Supplemental
Guidelines,” Chapter 8).

Reserves in undeveloped locations may be classified as Proved

provided that:
• The locations are in undrilled areas of the reservoir that can be
judged with reasonable certainty to be commercially
productive.
• Interpretations of available geoscience and engineering data
indicate with reasonable certainty that the objective formation
is laterally continuous with drilled Proved locations.

For Proved Reserves, the recovery efficiency applied to these

reservoirs should be defined based on a range of possibilities
supported by analogs and sound engineering judgment considering
the characteristics of the Proved area and the applied development
program.

Probable Reserves are those It is equally likely that actual remaining quantities recovered will be
Probable additional Reserves which greater than or less than the sum of the estimated Proved plus
Reserves analysis of geoscience and Probable Reserves (2P). In this context, when probabilistic
engineering data indicate are methods are used, there should be at least a 50% probability that
less likely to be recovered than the actual quantities recovered will equal or exceed the 2P
Proved Reserves but more estimate.
certain to be recovered than
Possible Reserves. Probable Reserves may be assigned to areas of a reservoir
adjacent to Proved where data control or interpretations of
available data are less certain. The interpreted reservoir continuity
may not meet the reasonable certainty criteria.
Probable estimates also include incremental recoveries associated
with project recovery efficiencies beyond that assumed for Proved.

28
Category Definition Guidelines
Possible Reserves are those The total quantities ultimately recovered from the project have a
Possible additional reserves which low probability to exceed the sum of Proved plus Probable plus
Reserves analysis of geoscience and Possible (3P), which is equivalent to the high estimate scenario.
engineering data indicate are When probabilistic methods are used, there should be at least a
less likely to be recoverable 10% probability that the actual quantities recovered will equal or
than Probable Reserves. exceed the 3P estimate.

Possible Reserves may be assigned to areas of a reservoir

adjacent to Probable where data control and interpretations of
available data are progressively less certain. Frequently, this may
be in areas where geoscience and engineering data are unable to
clearly define the area and vertical reservoir limits of commercial
production from the reservoir by a defined project.

Possible estimates also include incremental quantities associated

with project recovery efficiencies beyond that assumed for
Probable.

(See above for separate The 2P and 3P estimates may be based on reasonable alternative
Probable and criteria for Probable Reserves technical and commercial interpretations within the reservoir and/or
Possible and Possible Reserves.) subject project that are clearly documented, including comparisons
Reserves to results in successful similar projects.

In conventional accumulations, Probable and/or Possible Reserves

may be assigned where geoscience and engineering data identify
directly adjacent portions of a reservoir within the same
accumulation that may be separated from Proved areas by minor
faulting or other geological discontinuities and have not been
penetrated by a wellbore but are interpreted to be in
communication with the known (Proved) reservoir. Probable or
Possible Reserves may be assigned to areas that are structurally
higher than the Proved area. Possible (and in some cases,
Probable) Reserves may be assigned to areas that are structurally
lower than the adjacent Proved or 2P area.

Caution should be exercised in assigning Reserves to adjacent

reservoirs isolated by major, potentially sealing, faults until this
reservoir is penetrated and evaluated as commercially productive.
Justification for assigning Reserves in such cases should be clearly
documented. Reserves should not be assigned to areas that are
clearly separated from a known accumulation by non-productive
reservoir (i.e., absence of reservoir, structurally low reservoir, or
negative test results); such areas may contain Prospective
Resources.

In conventional accumulations, where drilling has defined a highest

known oil (HKO) elevation and there exists the potential for an
associated gas cap, Proved oil Reserves should only be assigned
in the structurally higher portions of the reservoir if there is
reasonable certainty that such portions are initially above bubble
point pressure based on documented engineering analyses.
Reservoir portions that do not meet this certainty may be assigned
as Probable and Possible oil and/or gas based on reservoir fluid
properties and pressure gradient interpretations.

29
 Appendix A: Glossary of Terms Used in Resources Evaluations
Originally published in January 2005, the SPE/WPC/AAPG Glossary has herein been revised to
align with the 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management System
document. The glossary provides high-level definitions of terms use in resource evaluations.
Where appropriate, sections and/or chapters within the 2007 and/or 2001 documents are
referenced to best show the use of selected terms in context.

TERM Reference DEFINITION

1C 2007 - 2.2.2 Denotes low estimate scenario of Contingent Resources.

2C 2007 - 2.2.2 Denotes best estimate scenario of Contingent Resources.

3C 2007 - 2.2.2 Denotes high estimate scenario of Contingent Resources.

1P 2007 - 2.2.2 Taken to be equivalent to Proved Reserves; denotes low estimate scenario of
Reserves.
2P 2007 - 2.2.2 Taken to be equivalent to the sum of Proved plus Probable Reserves; denotes
best estimate scenario of Reserves.
3P 2007 - 2.2.2 Taken to be equivalent to the sum of Proved plus Probable plus Possible
Reserves; denotes high estimate scenario of reserves.

Accumulation 2001 - 2.3 An individual body of naturally occurring petroleum in a reservoir.

Aggregation 2007 - 3.5.1 The process of summing reservoir (or project) level estimates of resource
2001 - 6 quantities to higher levels or combinations such as field, country or company
totals. Arithmetic summation of incremental categories may yield different results
from probabilistic aggregation of distributions.
Approved for 2007 - All necessary approvals have been obtained, capital funds have been committed, and
Development Table I implementation of the development project is underway.

Analogous 2007 - 3.4.1 Analogous reservoirs, as used in resources assessments, have similar rock and
Reservoir fluid properties, reservoir conditions (depth, temperature and pressure) and drive
mechanisms, but are typically at a more advanced stage of development than
the reservoir of interest and thus may provide concepts to assist in the
interpretation of more limited data and estimation of recovery.
Assessment 2007 - 1.2 See Evaluation.
Associated Associated Gas is a natural gas found in contact with or dissolved in crude oil in
Gas the reservoir. It can be further categorized as Gas-Cap Gas or Solution Gas.
Barrels of Oil 2001 - 3.7 See Crude Oil Equivalent.
Equivalent
(BOE)
Basin-Centered 2007 - 2.4 An unconventional natural gas accumulation that is regionally pervasive and
Gas characterized by low permeability, abnormal pressure, gas saturated reservoirs
and lack of a down-dip water leg.

30
Behind-Pipe 2007 - Behind-pipe reserves are expected to be recovered from zones in existing wells,
Reserves 2.1.3.1 which will require additional completion work or future re-completion prior to the
start of production. In all cases, production can be initiated or restored with
relatively low expenditure compared to the cost of drilling a new well.
Best Estimate 2007 - 2.2.2 With respect to resource categorization, this is considered to be the best
2001 - 2.5 estimate of the quantity that will actually be recovered from the accumulation by
the project. It is the most realistic assessment of recoverable quantities if only a
single result were reported. If probabilistic methods are used, there should be at
least a 50% probability (P50) that the quantities actually recovered will equal or
exceed the best estimate.
Bitumen 2007 - 2.4 See Natural Bitumen.

Buy Back An agreement between a host government and a contractor under which the
Agreement host pays the contractor an agreed price for all volumes of hydrocarbons
produced by the contractor. Pricing mechanisms typically provide the contractor
with an opportunity to recover investment at an agreed level of profit.
Carried Interest 2001 - 9.6.7 A carried interest is an agreement under which one party (the carrying party)
agrees to pay for a portion or all of the pre-production costs of another party (the
carried party) on a license in which both own a portion of the working interest.

Chance 2007 - 1.1 Chance is 1- Risk. (See Risk)

Coalbed 2007 - 2.4 Natural gas contained in coal deposits, whether or not stored in gaseous phase.
Methane (CBM) Coalbed gas, although usually mostly methane, may be produced with variable
amounts of inert or even non-inert gases. (Also termed Coal Seam Gas, CSG, or
Natural Gas from Coal, NGC)
Commercial 2007 - 2.1.2 When a project is commercial, this implies that the essential social,
and Table 1 environmental and economic conditions are met, including political, legal,
regulatory and contractual conditions. In addition, a project is commercial if the
degree of commitment is such that the accumulation is expected to be
developed and placed on production within a reasonable time frame. While 5
years is recommended as a benchmark, a longer time frame could be applied
where, for example, development of economic projects are deferred at the option
of the producer for, among other things, market-related reasons, or to meet
contractual or strategic objectives. In all cases, the justification for classification
as Reserves should be clearly documented.
Committed 2007 - 2.1.2 Projects are committed only when it can be demonstrated that there is a firm
Project and Table 1 intention to develop them and bring them to production. Intention may be
demonstrated with funding/financial plans and declaration of commerciality
based on realistic expectations of regulatory approvals and reasonable
satisfaction of other conditions that would otherwise prevent the project from
being developed and brought to production.

31
Completion Completion of a well. The process by which a well is brought to its final
classification—basically dry hole, producer, injector, or monitor well. A dry hole
is normally plugged and abandoned. A well deemed to be producible of
petroleum, or used as an injector, is completed by establishing a connection
between the reservoir(s) and the surface so that fluids can be produced from, or
injected into, the reservoir. Various methods are utilized to establish this
connection, but they commonly involve the installation of some combination of
borehole equipment, casing and tubing, and surface injection or production
facilities.
Completion The specific reservoir interval(s) that is (are) open to the borehole and connected
Interval to the surface facilities for production or injection, or reservoir intervals open to
the wellbore and each other for injection purposes.
Concession 2001 - 9.6.1 A grant of access for a defined area and time period that transfers certain
entitlements to produced hydrocarbons from the host country to an enterprise.
The enterprise is generally responsible for exploration, development, production,
and sale of hydrocarbons that may be discovered. Typically granted under a
legislated fiscal system where the host country collects taxes, fees, and
sometimes royalty on profits earned.
Condensate 2001 - 3.2 Condensates are a mixture of hydrocarbons (mainly pentanes and heavier) that
exist in the gaseous phase at original temperature and pressure of the reservoir,
but when produced, are in the liquid phase at surface pressure and temperature
conditions. Condensate differs from natural gas liquids (NGL) on two respects:
(1) NGL is extracted and recovered in gas plants rather than lease separators or
other lease facilities; and (2) NGL includes very light hydrocarbons (ethane,
propane, butanes) as well as the pentanes-plus that are the main constituents of
condensate.
Conditions 2007 - 3.1 The economic, marketing, legal, environmental, social, and governmental factors
forecast to exist and impact the project during the time period being evaluated
(also termed Contingencies).
Constant 2007 - 3.1.1 Modifier applied to project resources estimates and associated cash flows when
Case such estimates are based on those conditions (including costs and product
prices) that are fixed at a defined point in time (or period average) and are
applied unchanged throughout the project life, other than those permitted
contractually. In other words, no inflation or deflation adjustments are made to
costs or revenues over the evaluation period.
Contingency 2007 - 3.1 See Conditions.
and Table 1
Contingent 2007 - 2.1.2 Development and production of recoverable quantities has not been committed
Project due to conditions that may or may not be fulfilled.
Contingent 2007 - 1.1 Those quantities of petroleum estimated, as of a given date, to be potentially
Resources and Table 1 recoverable from known accumulations by application of development projects
but which are not currently considered to be commercially recoverable due to
one or more contingencies. Contingent Resources are a class of discovered
recoverable resources.
Continuous- 2007 - 2.4 A petroleum accumulation that is pervasive throughout a large area and which is
Type Deposit 2001 - 2.3 not significantly affected by hydrodynamic influences. Such accumulations are
included in Unconventional Resources. Examples of such deposits include
“basin-centered” gas, shale gas, gas hydrates, natural bitumen and oil shale
accumulations.

32
Conventional 2007 - 2.4 Crude oil flowing naturally or capable of being pumped without further
Crude Oil processing or dilution (see Crude Oil).

Conventional 2007 - 2.4 Conventional Gas is a natural gas occurring in a normal porous and permeable
Gas reservoir rock, either in the gaseous phase or dissolved in crude oil, and which
technically can be produced by normal production practices.
Conventional 2007 - 2.4 Conventional resources exist in discrete petroleum accumulations related to
Resources localized geological structural features and/or stratigraphic conditions, typically
with each accumulation bounded by a downdip contact with an aquifer, and
which is significantly affected by hydrodynamic influences such as buoyancy of
petroleum in water.
Conveyance 2001 - 9.6.9 Certain transactions that are in substance borrowings repayable in cash or its
equivalent and shall be accounted for as borrowings and may not qualify for the
recognition and reporting of oil and gas reserves.
Cost Recovery 2001 - 9.6.2, Under a typical production-sharing agreement, the contractor is responsible for
9.7.2 the field development and all exploration and development expenses. In return,
the contractor recovers costs (investments and operating expenses) out of the
gross production stream. The contractor normally receives payment in oil
production and is exposed to both technical and market risks.
Crude Oil 2001 - 3.1 Crude oil is the portion of petroleum that exists in the liquid phase in natural
underground reservoirs and remains liquid at atmospheric conditions of pressure
and temperature. Crude oil may include small amounts of non-hydrocarbons
produced with the liquids but does not include liquids obtained from the
processing of natural gas.
Crude Oil 2001 - 3.7 Converting gas volumes to the oil equivalent is customarily done on the basis of
Equivalent the nominal heating content or calorific value of the fuel. There are a number of
methodologies in common use. Before aggregating, the gas volumes first must
be converted to the same temperature and pressure. Common industry gas
conversion factors usually range between 1 barrel of oil equivalent (BOE) =
5,600 standard cubic feet (scf) of gas to 1 BOE = 6,000 scf. (Many operators use
1 BOE = 5,620 scf derived from the metric unit equivalent 1 m³ crude oil = 1,000
m³ natural gas ). (Also termed Barrels of Oil Equivalent.)
Cumulative 2007 - 1.1 The sum of production of oil and gas to date (see also Production).
Production
Current 2007 - 3.1.1 Establishment of current economic conditions should include relevant historical
Economic petroleum prices and associated costs and may involve a defined averaging
Conditions period. The SPE guidelines recommend that a 1-year historical average of costs
and prices should be used as the default basis of “constant case” resources
estimates and associated project cash flows.
Cushion Gas With respect to underground natural gas storage, Cushion Gas Volume (CGV)
Volume is the gas volume required in a storage field for reservoir management purposes
and to maintain adequate minimum storage pressure for meeting working gas
volume delivery with the required withdrawal profile. In caverns, the cushion gas
volume is also required for stability reasons. The cushion gas volume may
consist of recoverable and non-recoverable in-situ gas volumes and injected gas
volumes.
Deposit 2007 - 2.4 Material laid down by a natural process. In resource evaluations, it identifies an
accumulation of hydrocarbons in a reservoir (see Accumulation).

33
Deterministic 2007 - 3.5 The method of estimation of Reserves or Resources is called deterministic if a
Estimate discrete estimate(s) is made based on known geoscience, engineering, and
economic data.
Developed 2007 - Developed Reserves are expected to be recovered from existing wells including
Reserves 2.1.3.2 and reserves behind pipe. Improved recovery reserves are considered “developed”
Table 2 only after the necessary equipment has been installed, or when the costs to do
so are relatively minor compared to the cost of a well. Developed Reserves may
be further sub-classified as Producing or Non-Producing.

Developed 2007 - Developed Producing Reserves are expected to be recovered from completion
Producing 2.1.3.2 and intervals that are open and producing at the time of the estimate. Improved
Reserves Table 2 recovery reserves are considered producing only after the improved recovery
project is in operation.
Developed 2007 - Developed Non-Producing Reserves include shut-in and behind-pipe Reserves.
Non-Producing 2.1.3.2 and Shut-in Reserves are expected to be recovered from (1) completion intervals
Reserves Table 2 which are open at the time of the estimate but which have not yet started
producing, (2) wells which were shut in for market conditions or pipeline
connections, or (3) wells not capable of production for mechanical reasons.
Behind-pipe Reserves are also those expected to be recovered from zones in
existing wells which will require additional completion work or future re-
completion prior to start of production. In all cases, production can be initiated or
restored with relatively low expenditure compared to the cost of drilling a new
well.
Development 2007 - A discovered accumulation for which there are no current plans to develop or to
Not Viable 2.1.3.1 and acquire additional data at the time due to limited production potential. A project
Table 1 maturity sub-class that reflects the actions required to move a project towards
commercial production.
Development 2007 - A discovered accumulation where project activities are ongoing to justify
Pending 2.1.3.1 and commercial development in the foreseeable future. A project maturity sub-class
Table 1 that reflects the actions required to move a project towards commercial
production.
Development 2007 - 1.2 The design specifications, timing and cost estimates of the development project
Plan including, but not limited to, well locations, completion techniques, drilling
methods, processing facilities, transportation and marketing. (See also Project.)

Development 2007 - A discovered accumulation where project activities are on hold and/or where
Unclarified or 2.1.3.1 and justification as a commercial development may be subject to significant delay. A
On Hold Table 1 project maturity sub-class that reflects the actions required to move a project
toward commercial production.

Discovered 2007 - 2.1.1 A discovery is one petroleum accumulation, or several petroleum accumulations
collectively, for which one or several exploratory wells have established through
testing, sampling, and/or logging the existence of a significant quantity of
potentially moveable hydrocarbons. In this context, “significant” implies that
there is evidence of a sufficient quantity of petroleum to justify estimating the in-
place volume demonstrated by the well(s) and for evaluating the potential for
economic recovery. (See also Known Accumulations.)

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Discovered 2007 - 1.1 Discovered Petroleum Initially-in-Place is that quantity of petroleum that is
Petroleum estimated, as of a given date, to be contained in known accumulations prior to
Initially-in-Place production. Discovered Petroleum Initially-in-Place may be subdivided into
Commercial, Sub-Commercial, and Unrecoverable, with the estimated
commercially recoverable portion being classified as Reserves and the
estimated sub-commercial recoverable portion being classified as Contingent
Resources.
Dry Gas 2001 - 3.2 Dry Gas is a natural gas remaining after hydrocarbon liquids have been removed
prior to the reference point. The dry gas and removed hydrocarbon liquids are
accounted for separately in resource assessments. It should be recognized that
this is a resource assessment definition and not a phase behavior definition.
(Also called Lean Gas.)
Dry Hole 2001 - 2.5 A well found to be incapable of producing either oil or gas in sufficient quantities
to justify completion as an oil or gas well.
Economic 2007 - 3.1.2 In relation to petroleum Reserves and Resources, economic refers to the
2001 - 4.3 situation where the income from an operation exceeds the expenses involved in,
or attributable to, that operation.
Economic 2001 - 9.4.1 An Economic Interest is possessed in every case in which an investor has
Interest acquired any Interest in mineral in place and secures, by any form of legal
relationship, revenue derived from the extraction of the mineral to which he must
look for a return of his capital.
Economic Limit 2007 - 3.1.2 Economic limit is defined as the production rate beyond which the net operating
2001 - 4.3 cash flows (after royalties or share of production owing to others) from a project,
which may be an individual well, lease, or entire field, are negative.
Entitlement 2007 - 3.3 That portion of future production (and thus resources) legally accruing to a
lessee or contractor under the terms of the development and production contract
with a lessor.
Entity 2007 - 3.0 Entity is a legal construct capable of bearing legal rights and obligations. In
resources evaluations this typically refers to the lessee or contractor, which is
some form of legal corporation (or consortium of corporations). In a broader
sense, an entity can be an organization of any form and may include
governments or their agencies.
Estimated 2007 - 1.1 Those quantities of petroleum which are estimated, on a given date, to be
Ultimate potentially recoverable from an accumulation, plus those quantities already
Recovery produced therefrom.
(EUR)
Evaluation 2007- 3.0 The geosciences, engineering, and associated studies, including economic
analyses, conducted on a petroleum exploration, development, or producing
project resulting in estimates of the quantities that can be recovered and sold
and the associated cash flow under defined forward conditions. Projects are
classified and estimates of derived quantities are categorized according to
applicable guidelines. (Also termed Assessment.)

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Evaluator 2007 - 1.2, The person or group of persons responsible for performing an evaluation of a
2.1.2 project. These may be employees of the entities that have an economic interest
in the project or independent consultants contracted for reviews and audits. In all
cases, the entity accepting the evaluation takes responsibility for the results,
including Reserves and Resources and attributed value estimates.
Exploration Prospecting for undiscovered petroleum.
Field 2001 - 2.3 An area consisting of a single reservoir or multiple reservoirs all grouped on, or
related to, the same individual geological structural feature and/or stratigraphic
condition. There may be two or more reservoirs in a field that are separated
vertically by intervening impermeable rock, laterally by local geologic barriers, or
both. The term may be defined differently by individual regulatory authorities.

Flare Gas 2007 - 3.2.2 Total volume of gas vented or burned as part of production and processing
2001 - 3.1 operations.

Flow Test 2007 - 2.1.1 An operation on a well designed to demonstrate the existence of moveable
petroleum in a reservoir by establishing flow to the surface and/or to provide an
indication of the potential productivity of that reservoir (such as a wireline
formation test).
Fluid Contacts 2007 - 2.2.2 The surface or interface in a reservoir separating two regions characterized by
predominant differences in fluid saturations. Because of capillary and other
phenomena, fluid saturation change is not necessarily abrupt or complete, nor is
the surface necessarily horizontal.
Forecast Case 2007 - 3.1.1 Modifier applied to project resources estimates and associated cash flow when
such estimates are based on those conditions (including costs and product price
schedules) forecast by the evaluator to reasonably exist throughout the life of the
project. Inflation or deflation adjustments are made to costs and revenues over
the evaluation period.
Forward Sales 2001 - 9.6.6 There are a variety of forms of transactions that involve the advance of funds to
the owner of an interest in an oil and gas property in exchange for the right to
receive the cash proceeds of production, or the production itself, arising from the
future operation of the property. In such transactions, the owner almost
invariably has a future performance obligation, the outcome of which is uncertain
to some degree. Determination as to whether the transaction represents a sale
or financing rests on the particular circumstances of each case.
Fuel Gas 2007 - 3.2.2 See Lease Fuel.

Gas Balance 2007 - 3.2.7 In gas production operations involving multiple working interest owners, an
2001 - 3.10 imbalance in gas deliveries can occur. These imbalances must be monitored
over time and eventually balanced in accordance with accepted accounting
procedures.

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Gas Cap Gas 2001 - 6.2.2 Gas Cap Gas is a free natural gas which overlies and is in contact with crude oil
in the reservoir. It is a subset of Associated Gas.
Gas Hydrates 2007 - 2.4 Gas hydrates are naturally occurring crystalline substances composed of water
and gas, in which a solid water lattice accommodates gas molecules in a cage-
like structure, or clathrate. At conditions of standard temperature and pressure
(STP), one volume of saturated methane hydrate will contain as much as 164
volumes of methane gas. Because of this large gas-storage capacity, gas
hydrates are thought to represent an important future source of natural gas. Gas
hydrates are included in unconventional resources, but the technology to support
commercial production has yet to be developed.
Gas Inventory With respect to underground natural gas storage, “gas inventory” is the sum of
Working Gas Volume and Cushion Gas Volume.
Gas/Oil Ratio 2007 - 3.4.4 Gas to oil ratio in an oil field, calculated using measured natural gas and crude
oil volumes at stated conditions. The gas/oil ratio may be the solution gas/oil ,
symbol Rs; produced gas/oil ratio, symbol Rp; or another suitably defined ratio of
gas production to oil production.
Gas Plant Gas Plant Products are natural gas liquids (or components) recovered from
Products natural gas in gas processing plants and, in some situations, from field facilities.
Gas Plant Products include ethane, propane, butanes, butanes/propane
mixtures, natural gasoline and plant condensates, sulfur, carbon dioxide,
nitrogen, and helium.
Gas-to-Liquids Gas-to-Liquids projects use specialized processing (e.g., Fischer-Tropsch
(GTL) Projects synthesis) to convert natural gas into liquid petroleum products. Typically, these
projects are applied to large gas accumulations where lack of adequate
infrastructure or local markets would make conventional natural gas
development projects uneconomic.
Geostatistical 2001 - 7.1 A variety of mathematical techniques and processes dealing with the collection,
Methods methods, analysis, interpretation, and presentation of masses of geoscience and
engineering data to (mathematically) describe the variability and uncertainties
within any reservoir unit or pool, specifically related here to resources estimates,
including the definition of (all) well and reservoir parameters in 1, 2, and 3
dimensions and the resultant modeling and potential prediction of various
aspects of performance.
High Estimate 2007 - 2.2.2 With respect to resource categorization, this is considered to be an optimistic
2001 - 2.5 estimate of the quantity that will actually be recovered from an accumulation by a
project. If probabilistic methods are used, there should be at least a 10%
probability (P10) that the quantities actually recovered will equal or exceed the
high estimate.
Hydrocarbons 2007 - 1.1 Hydrocarbons are chemical compounds consisting wholly of hydrogen and
carbon.

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Improved 2007 - 2.3.4 Improved Recovery is the extraction of additional petroleum, beyond Primary
Recovery (IR) Recovery, from naturally occurring reservoirs by supplementing the natural
forces in the reservoir. It includes waterflooding and gas injection for pressure
maintenance, secondary processes, tertiary processes and any other means of
supplementing natural reservoir recovery processes. Improved recovery also
includes thermal and chemical processes to improve the in-situ mobility of
viscous forms of petroleum. (Also called Enhanced Recovery.)
Injection 2001 - 3.5 The forcing, pumping, or free flow under vacuum, of substances into a porous
2007 - 3.2.5 and permeable subsurface rock formation. Injected substances can include
either gases or liquids.
Justified for 2007 - Implementation of the development project is justified on the basis of reasonable
Development 2.1.3.1 and forecast commercial conditions at the time of reporting and that there are
Table 1 reasonable expectations that all necessary approvals/contracts will be obtained.
A project maturity sub-class that reflects the actions required to move a project
toward commercial production.
Kerogen The naturally occurring, solid, insoluble organic material that occurs in source
rocks and can yield oil upon heating. Kerogen is also defined as the fraction of
large chemical aggregates in sedimentary organic matter that is insoluble in
solvents (in contrast, the fraction that is soluble in organic solvents is called
bitumen). (See also Oil Shales.)
Known 2007 - 2.1.1 An accumulation is an individual body of petroleum-in-place. The key
Accumulation 2001 - 2.2 requirement to consider an accumulation as “known,” and hence containing
Reserves or Contingent Resources, is that it must have been discovered, that is,
penetrated by a well that has established through testing, sampling, or logging
the existence of a significant quantity of recoverable hydrocarbons.
Lead 2007 - A project associated with a potential accumulation that is currently poorly defined
2.1.3.1 and and requires more data acquisition and/or evaluation in order to be classified as
Table 1 a prospect. A project maturity sub-class that reflects the actions required to move
a project toward commercial production.
Lease Lease Condensate is condensate recovered from produced natural gas in
Condensate gas/liquid separators or field facilities.
Lease Fuel 2007 - 3.2.2 Oil and/or gas used for field and processing plant operations. For consistency,
quantities consumed as lease fuel should be treated as shrinkage. However,
regulatory guidelines may allow lease fuel to be included in Reserves estimates.
Where claimed as Reserves, such fuel quantities should be reported separately
from sales, and their value must be included as an operating expense.
Lease Plant A general term referring to processing facilities that are dedicated to one or more
development projects and the petroleum is processed without prior custody
transfer from the owners of the extraction project (for gas projects, also termed
“Local Gas Plant”).

Liquefied Liquefied Natural Gas projects use specialized cryogenic processing to convert
Natural Gas natural gas into liquid form for tanker transport. LNG is about 1/164 the volume
(LNG) Project of natural gas at standard temperature and pressure.
Loan 2001 - 9.6.5 A loan agreement is typically used by a bank, other investor, or partner to
Agreement finance all or part of an oil and gas project. Compensation for funds advanced is
limited to a specified interest rate.

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Low/Best/High 2007 - 2.2.1, The range of uncertainty reflects a reasonable range of estimated potentially
Estimates 2.2.2 recoverable volumes at varying degrees of uncertainty (using the cumulative
scenario approach) for an individual accumulation or a project.
Low Estimate 2007 - 2.2.2 With respect to resource categorization, this is considered to be a conservative
2001 - 2.5 estimate of the quantity that will actually be recovered from the accumulation by
a project. If probabilistic methods are used, there should be at least a 90%
probability (P90) that the quantities actually recovered will equal or exceed the
low estimate.
Lowest Known 2007 - 2.2.2. The deepest occurrence of a producible hydrocarbon accumulation as
Hydrocarbons interpreted from well log, flow test, pressure measurement, or core data.
Marginal 2007 - Known (discovered) accumulations for which a development project(s) has been
Contingent 2.1.3.3 evaluated as economic or reasonably expected to become economic but
Resources commitment is withheld because of one or more contingencies (e.g., lack of
market and/or infrastructure).
Measurement 2007 - 3.0 The process of establishing quantity (volume or mass) and quality of petroleum
products delivered to a reference point under conditions defined by delivery
contract or regulatory authorities.

Mineral Interest 2001 - 9.3 Mineral Interests in properties including (1) a fee ownership or lease,
concession, or other interest representing the right to extract oil or gas subject to
such terms as may be imposed by the conveyance of that interest; (2) royalty
interests, production payments payable in oil or gas, and other non-operating
interests in properties operated by others; and (3) those agreements with foreign
governments or authorities under which a reporting entity participates in the
operation of the related properties or otherwise serves as producer of the
underlying reserves (as opposed to being an independent purchaser, broker,
dealer, or importer).
Monte Carlo 2001 - 5 A type of stochastic mathematical simulation that randomly and repeatedly
Simulation 2007 - 3.5 samples input distributions (e.g., reservoir properties) to generate a resulting
distribution (e.g., recoverable petroleum volumes).

Natural 2007 - 2.4 Natural Bitumen is the portion of petroleum that exists in the semisolid or solid
Bitumen phase in natural deposits. In its natural state, it usually contains sulfur, metals,
and other non-hydrocarbons. Natural Bitumen has a viscosity greater than
10,000 milliPascals per second (mPa.s) (or centipoises) measured at original
temperature in the deposit and atmospheric pressure, on a gas free basis. In its
natural viscous state, it is not normally recoverable at commercial rates through
a well and requires the implementation of improved recovery methods such as
steam injection. Natural Bitumen generally requires upgrading prior to normal
refining. (Also called Crude Bitumen.)
Natural Gas 2007 - 3.2.3 Natural Gas is the portion of petroleum that exists either in the gaseous phase or
2001 - 6.6, is in solution in crude oil in natural underground reservoirs, and which is gaseous
9.4.4 at atmospheric conditions of pressure and temperature. Natural Gas may include
some amount of non-hydrocarbons.

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Natural Gas With respect to underground natural gas storage operations “inventory” is the
Inventory total of working and cushion gas volumes.
Natural Gas 2007 - A13 Natural Gas Liquids (NGL) are a mixture of light hydrocarbons that exist in the
Liquids 2001 - 3.2, gaseous phase and are recovered as liquids in gas processing plants. NGL
9.4.4 differs from condensate in two principal respects: (1) NGL is extracted and
recovered in gas plants rather than lease separators or other lease facilities, and
(2) NGL includes very light hydrocarbons (ethane, propane, butanes) as well as
the pentanes-plus that are the main constituents of condensates.
Natural Gas Natural gas liquids to gas ratio in an oil or gas field, calculated using measured
Liquids to Gas natural gas liquids and gas volumes at stated conditions.
Ratio
Net-Back 2007 - 3.2.1 Linkage of input resource to the market price of the refined products.

Net Profits 2001 - 9.4.4 An interest that receives a portion of the net proceeds from a well, typically after
Interest all costs have been paid.

Net Working 2001 - 9.6.1 A company’s working interest reduced by royalties or share of production owing
Interest to others under applicable lease and fiscal terms. (Also called Net Revenue
Interest.)
Non- 2007 - 3.2.4 Natural occurring associated gases such as nitrogen, carbon dioxide, hydrogen
Hydrocarbon 2001 - 3.3 sulfide, and helium. If non-hydrocarbon gases are present, the reported volumes
Gas should reflect the condition of the gas at the point of sale. Correspondingly, the
accounts will reflect the value of the gas product at the point of sale.
Non-Associated Non-Associated Gas is a natural gas found in a natural reservoir that does not
Gas contain crude oil.

Normal Production practices that involve flow of fluids through wells to surface facilities
Production that involve only physical separation of fluids and, if necessary, solids. Wells can
Practices be stimulated, using techniques including, but not limited to, hydraulic fracturing,
acidization, various other chemical treatments, and thermal methods, and they
can be artificially lifted (e.g., with pumps or gas lift). Transportation methods can
include mixing with diluents to enable flow, as well as conventional methods of
compression or pumping. Practices that involve chemical reforming of molecules
of the produced fluids are considered manufacturing processes.
Oil Sands Sand deposits highly saturated with natural bitumen. Also called “Tar Sands.”
Note that in deposits such as the western Canada “oil sands,” significant
quantities of natural bitumen may be hosted in a range of lithologies including
siltstones and carbonates.

Oil Shales 2007 - 2.4 Shale, siltstone and marl deposits highly saturated with kerogen. Whether
extracted by mining or in situ processes, the material must be extensively
processed to yield a marketable product (synthetic crude oil).

Offset Well Potential drill location adjacent to an existing well. The offset distance may be
Location governed by well spacing regulations. In the absence of well spacing regulations,
technical analysis of drainage areas may be used to define the spacing. For
Proved volumes to be assigned to an offset well location there must be
conclusive, unambiguous technical data which supports the reasonable certainty
of production of hydrocarbon volumes and sufficient legal acreage to
economically justify the development without going below the shallower of the
fluid contact or the lowest known hydrocarbon.

40
On Production 2007 - The development project is currently producing and selling petroleum to market.
2.1.3.1 and A project status/maturity sub-class that reflects the actions required to move a
Table 1 project toward commercial production.

Operator The company or individual responsible for managing an exploration,

development, or production operation.

Overlift/Underlift 2007 - 3.2.7 Production overlift or underlift can occur in annual records because of the
2001 - 3.9 necessity for companies to lift their entitlement in parcel sizes to suit the
available shipping schedules as agreed among the parties. At any given financial
year-end, a company may be in overlift or underlift. Based on the production
matching the company’s accounts, production should be reported in accord with
and equal to the liftings actually made by the company during the year, and not
on the production entitlement for the year.

Penetration 2007 - 1.2 The intersection of a wellbore with a reservoir.

Petroleum 2007 - 1.0 Petroleum is defined as a naturally occurring mixture consisting of hydrocarbons
in the gaseous, liquid, or solid phase. Petroleum may also contain non-
hydrocarbon compounds, common examples of which are carbon dioxide,
nitrogen, hydrogen sulfide, and sulfur. In rare cases, non-hydrocarbon content
could be greater than 50%.
Petroleum 2007 - 1.1 Petroleum Initially-in-Place is the total quantity of petroleum that is estimated to
Initially-in-Place exist originally in naturally occurring reservoirs. Crude Oil-in-place, Natural Gas-
in-place and Natural Bitumen-in-place are defined in the same manner (see
Resources). (Also referred as Total Resource Base or Hydrocarbon
Endowment.)

Pilot Project 2007 - 2.3.4, A small-scale test or trial operation that is used to assess the suitability of a
2.4 method for commercial application.

Play 2007 - A project associated with a prospective trend of potential prospects, but which
2.1.3.1 and requires more data acquisition and/or evaluation in order to define specific leads
Table 1 or prospects. A project maturity sub-class that reflects the actions required to
move a project toward commercial production.
Pool An individual and separate accumulation of petroleum in a reservoir.

Possible 2007 - 2.2.2 An incremental category of estimated recoverable volumes associated with a
Reserves and Table 3 defined degree of uncertainty. Possible Reserves are those additional reserves
which analysis of geoscience and engineering data suggest are less likely to be
recoverable than Probable Reserves. The total quantities ultimately recovered
from the project have a low probability to exceed the sum of Proved plus
Probable plus Possible (3P), which is equivalent to the high estimate scenario.
When probabilistic methods are used, there should be at least a 10% probability
that the actual quantities recovered will equal or exceed the 3P estimate.
Primary Primary recovery is the extraction of petroleum from reservoirs utilizing only the
Recovery natural energy available in the reservoirs to move fluids through the reservoir
rock to other points of recovery.
Probability 2007 - 2.2.1 The extent to which an event is likely to occur, measured by the ratio of the
favorable cases to the whole number of cases possible. SPE convention is to
quote cumulative probability of exceeding or equaling a quantity where P90 is
the small estimate and P10 is the large estimate. (See also Uncertainty.)

41
Probabilistic 2007 - 3.5 The method of estimation of Resources is called probabilistic when the known
Estimate geoscience, engineering, and economic data are used to generate a continuous
range of estimates and their associated probabilities.

Probable 2007 - 2.2.2 An incremental category of estimated recoverable volumes associated with a
Reserves and Table 3 defined degree of uncertainty. Probable Reserves are those additional Reserves
that are less likely to be recovered than Proved Reserves but more certain to be
recovered than Possible Reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of the estimated
Proved plus Probable Reserves (2P). In this context, when probabilistic methods
are used, there should be at least a 50% probability that the actual quantities
recovered will equal or exceed the 2P estimate.
Production 2007 - 1.1 Production is the cumulative quantity of petroleum that has been actually
recovered over a defined time period. While all recoverable resource estimates
and production are reported in terms of the sales product specifications, raw
production quantities (sales and non-sales, including non-hydrocarbons) are also
measured to support engineering analyses requiring reservoir voidage
calculations.
Production- 2007 - 3.3.2 In a production-sharing contract between a contractor and a host government,
Sharing 2001 - 9.6.2 the contractor typically bears all risk and costs for exploration, development, and
Contract production. In return, if exploration is successful, the contractor is given the
opportunity to recover the incurred investment from production, subject to
specific limits and terms. Ownership is retained by the host government;
however, the contractor normally receives title to the prescribed share of the
volumes as they are produced.
Profit Split 2001 - 9.6.2 Under a typical production-sharing agreement, the contractor is responsible for
the field development and all exploration and development expenses. In return,
the contractor is entitled to a share of the remaining profit oil or gas. The
contractor receives payment in oil or gas production and is exposed to both
technical and market risks.
Project 2007 - 1.2 Represents the link between the petroleum accumulation and the decision-
2001 - 2.3 making process, including budget allocation. A project may, for example,
constitute the development of a single reservoir 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 general, 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. (See also
Development Plan.)
Property 2007 - 1.2 A volume of the Earth’s crust wherein a corporate entity or individual has
2001 - 9.4 contractual rights to extract, process, and market a defined portion of specified
in-place minerals (including petroleum). Defined in general as an area but may
have depth and/or stratigraphic constraints. May also be termed a lease,
concession, or license.
Prorationing The allocation of production among reservoirs and wells or allocation of pipeline
capacity among shippers, etc.
Prospect 2007 - A project associated with a potential accumulation that is sufficiently well defined
2.1.3.1 and to represent a viable drilling target. A project maturity sub-class that reflects the
Table 1 actions required to move a project toward commercial production.

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Prospective 2007 - 1.1 Those quantities of petroleum which are estimated, as of a given date, to be
Resources and Table 1 potentially recoverable from undiscovered accumulations.

Proved 2007 - 3.1.1 In many cases, external regulatory reporting and/or financing requires that, even
Economic if only the Proved Reserves estimate for the project is actually recovered, the
project will still meet minimum economic criteria; the project is then termed as
“Proved Economic.”

Proved 2007 - 2.2.2 An incremental category of estimated recoverable volumes associated with a
Reserves and Table 3 defined degree of uncertainty Proved Reserves are those quantities of petroleum
which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be commercially recoverable, from a given date forward,
from known reservoirs and under defined economic conditions, operating
methods, and government regulations. If deterministic methods are used, the
term reasonable certainty is intended to express a high degree of confidence that
the quantities will be recovered. If probabilistic methods are used, there should
be at least a 90% probability that the quantities actually recovered will equal or
exceed the estimate. Often referred to as 1P, also as “Proven.”
Purchase 2001 - 9.6.8 A contract to purchase oil and gas provides the right to purchase a specified
Contracts volume of production at an agreed price for a defined term.
Pure-Service 2001 - 9.7.5 A pure-service contract is an agreement between a contractor and a host
Contract government that typically covers a defined technical service to be provided or
completed during a specific period of time. The service company investment is
typically limited to the value of equipment, tools, and expenses for personnel
used to perform the service. In most cases, the service contractor’s
reimbursement is fixed by the terms of the contract with little exposure to either
project performance or market factors.

Range of 2007 - 2.2 The range of uncertainty of the recoverable and/or potentially recoverable
Uncertainty 2001 - 2.5 volumes may be represented by either deterministic scenarios or by a probability
distribution. (See Resource Uncertainty Categories.)
Raw Natural 2007 - 3.2.1 Raw Natural Gas is natural gas as it is produced from the reservoir. It includes
Gas water vapor and varying amounts of the heavier hydrocarbons that may liquefy in
lease facilities or gas plants and may also contain sulfur compounds such as
hydrogen sulfide and other non-hydrocarbon gases such as carbon dioxide,
nitrogen, or helium, but which, nevertheless, is exploitable for its hydrocarbon
content. Raw Natural Gas is often not suitable for direct utilization by most types
of consumers.
Reasonable 2007 - 2.2.2 If deterministic methods for estimating recoverable resource quantities are used,
Certainty then reasonable certainty is intended to express a high degree of confidence that
the estimated quantities will be recovered.

Reasonable 2007 - 2.1.2 Indicates a high degree of confidence (low risk of failure) that the project will
Expectation proceed with commercial development or the referenced event will occur.
Reasonable 2007 - 3.1.2 Indicates a high degree of confidence in predictions of future events and
Forecast commercial conditions. The basis of such forecasts includes, but is not limited to,
analysis of historical records and published global economic models.
Recoverable 2007 - 1.2 Those quantities of hydrocarbons that are estimated to be producible from
Resources discovered or undiscovered accumulations.

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Recovery 2007 - 2.2 A numeric expression of that portion of in-place quantities of petroleum
Efficiency estimated to be recoverable by specific processes or projects, most often
represented as a percentage.
Reference 2007 - 3.2.1 A defined location within a petroleum extraction and processing operation where
Point quantities of produced product are measured under defined conditions prior to
custody transfer (or consumption). Also called Point of Sale or Custody Transfer
Point.
Reserves 2007 - 1.1 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. 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.
Reservoir 2001 - 2.3 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.

Resources 2007 - 1.1 The term “resources” as used herein is intended to encompass all quantities of
petroleum (recoverable and unrecoverable) naturally occurring on or within the
Earth’s crust, discovered and undiscovered, plus those quantities already
produced. Further, it includes all types of petroleum whether currently considered
“conventional” or “unconventional” (see Total Petroleum Initially-in-Place). (In
basin potential studies, it may be referred to as Total Resource Base or
Hydrocarbon Endowment.)
Resources 2007 - 2.2 Subdivisions of estimates of resources to be recovered by a project(s) to indicate
Categories and Table 3 the associated degrees of uncertainty. Categories reflect uncertainties in the total
petroleum remaining within the accumulation (in-place resources), that portion of
the in-place petroleum that can be recovered by applying a defined development
project or projects, and variations in the conditions that may impact commercial
development (e.g., market availability, contractual changes)
Resources 2007 - 1.1, Subdivisions of Resources that indicate the relative maturity of the development
Classes 2.1 and projects being applied to yield the recoverable quantity estimates. Project
Table 1 maturity may be indicated qualitatively by allocation to classes and sub-classes
and/or quantitatively by associating a project’s estimated chance of reaching
producing status.
Revenue- 2001 - 9.6.3 Revenue-sharing contracts are very similar to the production-sharing contracts
Sharing described earlier, with the exception of contractor payment. With these contracts,
Contract the contractor usually receives a defined share of revenue rather than a share of
the production.

Reversionary The right of future possession of an interest in a property when a specified

Interest condition has been met.
Risk 2001 - 2.5 The probability of loss or failure. As “risk” is generally associated with the
negative outcome, the term “chance” is preferred for general usage to describe
the probability of a discrete event occurring.

44
Risk and 2001 - 9.4 Risk and reward associated with oil and gas production activities stems primarily
Reward from the variation in revenues due to technical and economic risks. Technical
risk affects a company’s ability to physically extract and recover hydrocarbons
and is usually dependent on a number of technical parameters. Economic risk is
a function of the success of a project and is critically dependent on cost, price,
and political or other economic factors.

Risked-Service 2007 - 3.3.2 These agreements are very similar to the production-sharing agreements with
Contract 2001 - 9.7.4 the exception of contractor payment, but risk is borne by the contractor. With a
risked-service contract, the contractor usually receives a defined share of
revenue rather than a share of the production.
Royalty 2007 - 3.3.1 Royalty refers to payments that are due to the host government or mineral owner
2001 - 3.8 (lessor) in return for depletion of the reservoirs and the producer
(lessee/contractor) for having access to the petroleum resources. Many
agreements allow for the producer to lift the royalty volumes, sell them on behalf
of the royalty owner, and pay the proceeds to the owner. Some agreements
provide for the royalty to be taken only in kind by the royalty owner.
Sales 2007 - 3.2 The quantity of petroleum product delivered at the custody transfer (reference
point) with specifications and measurement conditions as defined in the sales
contract and/or by regulatory authorities. All recoverable resources are estimated
in terms of the product sales quantity measurements.

Shut-in 2007 - Shut-in Reserves are expected to be recovered from (1) completion intervals
Reserves 2.1.3.2 and which are open at the time of the estimate, but which have not started producing;
Table 2 (2) wells which were shut-in for market conditions or pipeline connections; or (3)
wells not capable of production for mechanical reasons.
Solution Gas Solution Gas is a natural gas which is dissolved in crude oil in the reservoir at the
prevailing reservoir conditions of pressure and temperature. It is a subset of
Associated Gas.
Sour Natural 2001 - 3.4 Sour Natural Gas is a natural gas that contains sulfur, sulfur compounds, and/or
Gas carbon dioxide in quantities that may require removal for sales or effective use.
Stochastic 2001 - 5 Adjective defining a process involving or containing a random variable or
variables or involving chance or probability such as a stochastic stimulation.
Sub- 2007 - 2.1.2 A project is Sub-Commercial if the degree of commitment is such that the
Commercial accumulation is not expected to be developed and placed on production within a
reasonable time frame. While 5 years is recommended as a benchmark, a longer
time frame could be applied where, for example, development of economic
projects are deferred at the option of the producer for, among other things,
market-related reasons, or to meet contractual or strategic objectives.
Discovered sub-commercial projects are classified as Contingent Resources.
Sub-Marginal 2007 - Known (discovered) accumulations for which evaluation of development
Contingent 2.1.3.3 project(s) indicated they would not meet economic criteria, even considering
Resources reasonably expected improvements in conditions.
Sweet Natural 2001 - 3.3 Sweet Natural Gas is a natural gas that contains no sulfur or sulfur compounds
Gas at all, or in such small quantities that no processing is necessary for their
removal in order that the gas may be sold.

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Synthetic 2001 - A12, A mixture of hydrocarbons derived by upgrading (i.e., chemically altering) natural
Crude Oil A13 bitumen from oil sands, kerogen from oil shales, or processing of other
(SCO) substances such as natural gas or coal. SCO may contain sulfur or other non-
hydrocarbon compounds and has many similarities to crude oil.

Taxes 2001 - 9.4.2 Obligatory contributions to the public funds, levied on persons, property, or
income by governmental authority.

Technical 2007 - 2.2 Indication of the varying degrees of uncertainty in estimates of recoverable
Uncertainty quantities influenced by range of potential in-place hydrocarbon resources within
the reservoir and the range of the recovery efficiency of the recovery project
being applied.
Total 2007 - 1.1 Total Petroleum Initially-in-Place is generally accepted to be all those estimated
Petroleum quantities of petroleum contained in the subsurface, as well as those quantities
Initially-in-Place already produced. This was defined previously by the WPC as “Petroleum-in-
place” and has been termed “Resource Base” by others. Also termed “Original-
in-Place” or “Hydrocarbon Endowment.”
Uncertainty 2007 - 2.2 The range of possible outcomes in a series of estimates. For recoverable
2001 - 2.5 resource assessments, the range of uncertainty reflects a reasonable range of
estimated potentially recoverable quantities for an individual accumulation or a
project. (See also Probability.)
Unconventional 2007 - 2.4, Unconventional resources exist in petroleum accumulations that are pervasive
Resources throughout a large area and that are not significantly affected by hydrodynamic
influences (also called “continuous-type deposits”). Examples include coalbed
methane (CBM), basin-centered gas, shale gas, gas hydrate, natural bitumen
(tar sands), and oil shale deposits. Typically, such accumulations require
specialized extraction technology (e.g., dewatering of CBM, massive fracturing
programs for shale gas, steam and/or solvents to mobilize bitumen for in-situ
recovery, and, in some cases, mining activities). Moreover, the extracted
petroleum may require significant processing prior to sale (e.g., bitumen
upgraders). (Also termed “Non-Conventional” Resources and “Continuous
Deposits.”)
Undeveloped 2001 - Undeveloped Reserves are quantities expected to be recovered through future
Reserves 2.1.3.1 and investments: (1) from new wells on undrilled acreage in known accumulations,
Table 2 (2) from deepening existing wells to a different (but known) reservoir, (3) from
infill wells that will increase recovery, or (4) where a relatively large expenditure
(e.g., when compared to the cost of drilling a new well) is required to (a)
recomplete an existing well or (b) install production or transportation facilities for
primary or improved recovery projects.
Unitization Process whereby owners group adjoining properties and divide reserves,
production, costs, and other factors according to their respective entitlement to
petroleum quantities to be recovered from the shared reservoir(s).
Unproved 2001 - 5.1.1 Unproved Reserves are based on geoscience and/or engineering data similar to
Reserves that used in estimates of Proved Reserves, but technical or other uncertainties
preclude such reserves being classified as Proved. Unproved Reserves may be
further categorized as Probable Reserves and Possible Reserves.
Unrecoverable 2007 - 1.1 That portion of Discovered or Undiscovered Petroleum Initially-in-Place
Resources quantities which are estimated, as of a given date, not to be recoverable. A
portion of these quantities may become recoverable in the future as commercial
circumstances change, technological developments occur, or additional data are
acquired.

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Upgrader 2007 - 2.4 A general term applied to processing plants that convert extra-heavy crude oil
and natural bitumen into lighter crude and less viscous synthetic crude oil (SCO).
While the detailed process varies, the underlying concept is to remove carbon
through coking or to increase hydrogen by hydrogenation processes using
catalysts.
Well The permanent plugging of a dry hole, an injection well, an exploration well, or a
Abandonment well that no longer produces petroleum or is no longer capable of producing
petroleum profitably. Several steps are involved in the abandonment of a well:
permission for abandonment and procedural requirements are secured from
official agencies; the casing is removed and salvaged if possible; and one or
more cement plugs and/or mud are placed in the borehole to prevent migration
of fluids between the different formations penetrated by the borehole. In some
cases, wells may be temporarily abandoned where operations are suspended for
extended periods pending future conversions to other applications such as
reservoir monitoring, enhanced recovery, etc.
Wet Gas 2001 - 3.2 Wet (Rich) Gas is natural gas from which no liquids have been removed prior to
2007 - 3.2.3 the reference point. The wet gas is accounted for in resource assessments, and
there is no separate accounting for contained liquids. It should be recognized
that this is a resource assessment definition and not a phase behavior definition.
Working Gas With respect to underground natural gas storage, Working Gas Volume (WGV) is
Volume the volume of gas in storage above the designed level of cushion gas which can
be withdrawn/injected with the installed subsurface and surface facilities (wells,
flowlines, etc.) subject to legal and technical limitations (pressures, velocities,
etc.). Depending on local site conditions (injection/withdrawal rates, utilization
hours, etc.), the working gas volume may be cycled more than once a year.
Working 2001 - 9 A company’s equity interest in a project before reduction for royalties or
Interest production share owed to others under the applicable fiscal terms.

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