Definition of Resources and Reserves

Taken from Section 5 of Volume 1 of the Canadian Oil and Gas Evaluation Handbook, by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy and Petroleum (Petroleum Society), June 30, 2002.

Crude Oil: A mixture, consisting mainly of pentanes and heavier hydrocarbons that exists in the liquid phase in reservoirs and remains liquid at atmospheric pressure and temperature. Crude oil may contain sulphur and other nonhydrocarbon compounds, but does not include liquids obtained from the processing of natural gas. Classes of crude oil are often reported on the basis of density, sometimes with different meanings.

Acceptable ranges are as follows:

• Light: less than 870 kg/m³ (greater than 31.1° API)
• Medium: 870 to 920 kg/m³ (31.1^o API to 22.3° API)
• Heavy: 920 to 1000 kg/m³ (22.3^o API to 10° API)
• Extra-heavy: greater than 1000 kg/m³ (less than 10° API)

Heavy or extra-heavy crude oils, as defined by the density ranges given, but with viscosities greater than 10000 mPa.s measured at original temperature in the reservoir and atmospheric pressure, on a gas-free basis, would generally be classified as bitumen.

Natural Gas: A mixture of lighter hydrocarbons that exist either in the gaseous phase or in solution in crude oil in reservoirs but are gaseous at atmospheric conditions. Natural gas may contain sulphur or other non-hydrocarbon compounds.

Natural Gas Liquids: Hydrocarbon components that can be recovered from natural gas as liquids including but not limited to, ethane, propane, butanes, pentanes; plus, condensate and small quantities of nonhydrocarbons.

Undiscovered Resources: Quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. The estimated potentially recoverable portion of undiscovered resources is classified as prospective resources.

Prospective Resources: Those quantities of oil and gas estimated on a given date to be potentially recoverable from undiscovered accumulations. They are technically and economically recoverable.

Resources Categories: Due to the high uncertainty in estimating resources, evaluations of these assets require some type of probabilistic method. Expected value concepts and decision tree analyses are routine; however, in high risk-high-reward projects, Monte Carlo simulation can be used. In any event, three success cases plus a failure case should be included in the evaluation of the resources. When evaluating resources, particulary contingent and prospective resources, the following mutually exclusive categories are recommended:

• Low Estimate: This is considered to be a conservative estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, this term reflects a P90 confidence level.
• Best Estimate: This is considered to be the best estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, this term is a measure of central tendency of the uncertainty distribution (most likely/mode, P50/median, or arithmetic average/mean.)
• High Estimate: This is considered to be an optimistic estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, this term reflects a P10 confidence level.

Reserves Categories: Estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from know accumulations, from a given date forward, based on:

• Analysis of drilling, geological, geophysical and engineering data;
• The use of established technology; and
• Specified economic conditions, which are generally accepted as being
  reasonable, and shall be disclosed.

Reserves are classified according to the degree of certainty associated with the estimates.

• Proved Reserves: Those reserves that can be estimated with high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
• Probable Reserves: Additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved + probable reserves.
• Possible Reserves: Those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved + probable + possible reserves.

Development and Production Status: Each of the reserves categories (proved, additional, and possible) may be divided into developed and undeveloped categories.

• Developed reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g., when compared to the cost of drilling a well) to put the reserves on production. The developed category may be subdivided into producing and non-producing.
• Developed producing reserves are those reserves that are expected to be recovered from completed intervals open at the time of the estimate. These reserves may be currently producing or shut in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
• Developed non-producing reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
• Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.

In multi-well pools, it may be appropriate to allocate total pool reserves between the developed and undeveloped categories or to subdivide the developed reserves for the pool between developed producing and developed non-producing. This allocation should be based on the estimator's assessment as to the reserves that will be recovered from specific wells, facilities, and completion intervals in the pool and their respective development and production status.

Levels of Certainty for Reported Reserves: The qualitative certainty levels contained in these definitions are applicable to individual Reserves Entities, which refers to the lowest level at which reserves calculations are performed, and to Reported Reserves, which refers to the highest level sum of individual entity estimates for which reserves estimates are presented. Reported Reserves should target the following levels of certainty under a specific set of economic conditions:

• P90: At least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves;
• P50: At least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved + probable reserves;
• P10: At least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved + probable + possible reserves.

A quantitative measure of the certainty levels pertaining to estimates prepared for the various reserves categories is desirable to provide a clearer understanding of the associated risks and uncertainties. However, the majority of reserves estimates will be prepared using deterministic methods that do not provide a mathematically derived quantitative measure of probability. In principle, there should be no difference between estimates prepared using probabilistic or deterministic methods.