A New Methodology for Resource Inventory Management

This paper presents a methodology that provides the upstream industry with a robust approach to petroleum inventory management. The authors describe the proper order of movements of resources within the Petroleum Resources Management System (PRMS) classification structure from Prospective Resources to Contingent Resources, to Reserves (and back). The methodology describes the causes of change in classification and what these changes mean when classifying Reserves as well as what are termed resources other than reserves (ROTR).

Introduction

The PRMS provides a framework for classifying petroleum resources as Reserves, Contingent Resources, or Prospective Resources, and uses the terms “classify” and “categorize” when placing resources into inventory. Classification depends on the chance of commerciality, and categorization depends on the certainty of recovery. Resources can then be subclassified within a given class on the basis of the differences in their chance of commerciality. The definitions of the subclasses for Reserves, Contingent Resources, and Prospective Resources are presented in Table 1 of the complete paper.

The subclasses of Reserves (On Production, Approved for Development, and Justified for Development) are related to progressing a project though final approvals to implementation and initiation of production and product sales.

The subclasses of Contingent Resources (Development Pending, Development on Hold, Development Unclarified, and Development Not Viable) can be related to gathering and analyzing data and clarifying the maturity of the project. These subclasses mainly focus on contingencies that may prevent a project from being classified as Reserves.

The subclasses of Prospective Resources (Play, Lead, and Prospect) are those that can move a project closer to a decision to proceed with exploration drilling. To progress through Prospective Resources, one should focus on Plays, and try to identify more Leads. Ultimately, the goal is to obtain Prospects. This differs from the decision-making process through Contingent Resources and Reserves that only requires additional data or studies that are used to understand the project better.

Although the authors focus their efforts on the inventorying of unconventional resources, the proposed methodology can be applied to conventional resources as well.

Discussion of Work Flows

The authors have divided their methodology into four steps to describe the progression to ROTR categories.

Step 1: Define Movements for Undiscovered Resources To Become Discovered. Prospective Resources are undiscovered petroleum volumes whose subclasses are Play, Lead, and Prospect. These three subclasses move a project closer to a decision to proceed with exploration drilling. Initial focus is given to the Play (a large area, initially with large sections of unleased acreage). From there, the aim is to identify more prospective areas, known as Leads, and ultimately obtain leases and identify specific drilling locations, known as Prospects.

Once the Prospect stage has been reached, the decision is made to drill, or not drill, the well. If it is drilled, then one can proceed with the work flow, but until drilling, resources are identified as Prospective. After a well is drilled, the question is posed as to whether a sufficient amount of recoverable petroleum exists to justify evaluation of a recovery project.

Once the resource volume is discovered, the volume can move through the Contingent Resources subclasses. The first, and most favorable, option is for the volume to move from Development Unclarified to Development on Hold, and ultimately Development Pending. This will allow the volume to then move to Reserves once all contingencies have been resolved. However, it is also possible that the volume moves down a subclass to ­Development Not Viable.

Step 2: Define Progression in Chance of Development or Commerciality Within Project-Maturity Subclasses Within the Contingent Resources Classification. This step defines progression through criteria that must be met and work that must be performed within each subclass of the Contingent Resources classification, and how the outcome of those decisions affects the chance of development for given resources.

This work flow begins where Prospective Resources are discovered, and have progressed to the Development Unclarified subclass of Contingent Resources. Note that if the resources continue to be undiscovered, these remain Prospective Resources. Next, the work flow asks if data acquisition, tests, and pilot data indicate if development is possible. As the chances of commerciality and development increase, one moves to the portion of the work flow that asks if technical and commercial success exist.

Once the resources have been subclassified as Development Pending, the chance of development and commerciality have increased. One must next consider whether there is a good chance that management will approve implementing the project. Chance of commercial success was already considered good in order to have moved to the Development Pending subclass.

As the steps progress through the Contingent Resources subclasses, the chances of development and commerciality increase, moving the volumes toward Reserves.

Step 3: Describe the Elements of a Pilot or Field-Testing Stage (if a Technology), and the Criteria Required for the Technology To Progress Further To Become an Established Technology. Technology is one of the main contingencies that must be met before ROTR can be classified as Reserves. Quite often, the petroleum-recovery process has not yet been determined for a given project at the time of the evaluation process. If neither existing technology nor technology currently under development can be used to evaluate the Resources, then the volumes must be classified as unrecoverable.

If the use of a new technology is considered, one can refer to it as “experimental technology.” An experimental technology must prove that it can repeatedly produce successful results, and do so economically. If the failure rate of technology is low, it may then be considered to be established technology. To be considered an established technology, it must prove to be reliable, and economical, throughout the stages of its development.

Once the proposed technology has proved to be economical, it must be established that the technology has experienced repeated commercial success. Once this is established, it becomes an established technology, and the Resources evaluated can now be classified as Reserves.

For a technology to become an established technology, it must succeed in both laboratory-testing and field-testing scenarios. Step 3 of the work flow focuses solely on the technology contingency, which is one of the main criteria that must be met before Contingent Resources volumes can be classified as Reserves. If the technology contingency is the only contingency for a given project, then once that technology is established, the volumes for that project can be classified as Reserves.

Step 4: Define Different Contingencies and the Movement Through Each Contingency. This may not be the order of movement for each project, but it does include all contingencies. Movement of volumes from Contingent Resources to Reserves will be referred to as a “promotion,” and movement of volumes from Reserves to Contingent Resources a “demotion.” Several factors can cause a promotion or a demotion between classes. These contingencies can be overcome in groups or one by one. The main contingencies include the following:

• Economic conditions are arguably the most significant factor influencing the commerciality of a project. If a decrease in commodity price occurs, a project may no longer be economical, and therefore no longer commercial. This causes a demotion of volumes.
• Production may not cause a direct promotion or demotion between classes of recovery estimates. The volumes that are produced need to be removed from the volumes previously being tracked as Reserves. This includes any expected or estimated production to be realized in the reporting period of interest.
• Drilling extensions result in additions to Reserves from capital expenditures (CAPEX) for step-out drilling in previously discovered reservoirs.
• Infill drilling results in additions to Reserves from CAPEX for infill drilling in previously discovered reservoirs that were not drilled as part of an enhanced recovery scheme.
• Improved recovery results in additions to Reserves from CAPEX for improved recovery projects.
• Technical revisions are a contingency as well. As new data are acquired, or as interpretations of Reserves or ROTR volumes are revised, either the volume itself or how the volume is classified could be affected.
• Additions to Reserves or ROTR volumes in reservoirs where no volumes were previously booked are considered to be discoveries. Once these volumes go through the proper screening to become discovered volumes, they can then move through the contingencies to be classified as Reserves.
• Any properties or volumes acquired need to be appropriately recorded and classified as part of inventory.
• Any properties or volumes sold need to be appropriately recorded and removed from inventory.

Conclusions

• Several steps are necessary for volumes to become discovered, but until a well is drilled, all resources volumes remain undiscovered (Prospective Resources).
• Once resources volumes are discovered, they become classified as Contingent Resources and subclassified as Development Unclarified.
• As one progresses through the Contingent Resources subclasses, the chances of development and of commerciality increase, moving resources volumes toward Reserves.
• Technology is one of the main contingencies that must be met for volumes to be classified as Reserves. For a technology to become established, it must have repeated commercial success.
• All contingencies must be met for the resources volumes to be classified as Reserves.
• The economic contingency is the most important, because no volumes will be classified as Reserves if proceeding with the project is not deemed economical.