Is There a Need for a Reserves Confidence Metric?

Abstract

Management An article published in the April 2014 JPT (McMillan 2014) discussed an SPE workshop survey regarding confidence in the SPE Petroleum Resources Management System [SPE-PRMS (2007)]. This survey identified issues regarding the believability of publicly disclosed reserves and resources. The survey also concluded that the interpretation of the SPE-PRMS in relation to unconventional resources is not consistent among reserve estimators. Critical to the integrity of our industry is confidence in publicly disclosed reserves. These reserves often come with limited supporting data and, therefore, tools need to be developed to enable the users, who may have limited technical knowledge, to identify estimates that should be used with caution or require additional supporting information. McMillan (2017) proposed a modified version of the reserves-production ratio, called the Reserve Confidence Metric (RCM), to gauge confidence. Poor confidence does not mean the reserve estimates are wrong; it means that the estimates are to be used with caution or further information is required. The SPE-PRMS presents a resource classification framework where reserves are the discovered recoverable volumes (contingent resources) for which the entity claiming commerciality has demonstrated a firm intention to proceed. The reserves are further characterized by the “range of uncertainty” generating a low, best, and high estimate referred to as proven reserves (1P), proved plus probable reserves (2P), and proved plus probable plus possible reserves (3P). 1P is often referred to as the banker’s case; 2P as the investor’s case; and 3P as the investor’s upside potential. Because reserves estimates are influenced by economic factors, the timing of a project’s production is integral to its valuation. McMillan (2017) demonstrated that reserves post-20-years had negligible impact on a project’s economics. RCM, which is derived from the reserves-production ratio (RPR) and reserves life index (RLI), ranks 2P reserves estimates as good confidence if the ratio is less than or equal to 20 years. Otherwise it is ranked as poor confidence. In the case of the RCM ranking of 1P reserves, 10 years is proposed as the pivot point. The RCM ranking is summarized in Table 1. RCM often registers poor confidence when the producing field is in the commissioning phase. In the case of undeveloped reserves, RCM will always be ranked as poor confidence. Having a rank of poor confidence requires the user to either use this information with caution or seek further clarification. RCM can be applied at any reserve level: country, lease, field, well, and reservoir. The following are examples of applying RCM[2P] to production areas located in Queensland, Australia. All the reserves and production data presented are available from the Queensland State Government website (Department of Natural Resources and Mines, Queensland Government 2016).