An Update of the Global Standard in Reserves/Resources Classification and Definitions

Since its publication in 2007, the SPE Petroleum Resources Management System (PRMS) has been broadly adopted by the petroleum industry as the international standard reference for reserves and resources classification and reporting. The SPE Oil and Gas Reserves Committee (OGRC) continues its commitment to periodically update the PRMS to accommodate changes in ­technology, commercial arrangements, and, as required, to address evolving industry needs. We are pleased to announce that the 2018 PRMS update has been approved by all sponsoring organizations and by the SPE Board of Directors in June.

How Did We Get There?

An OGRC Update Subcommittee was formed in 2014 to critically review the 2007 document based on industry feedback gathered during a series of workshops over the intervening 7 years. OGRC subgroups examined how the document should be improved and advanced to better support the full range of stakeholders using a standard project-based assessment process while maintaining the key principles. Numerous discussions were held between the sponsoring societies, OGRC members, and other industry experts to develop and refine the draft prior to public comment.

The document was posted for a 90-day public comment period beginning on 15 August 2017. At that time, over 250 personalized letters were distributed announcing the proposed update and requesting feedback from consulting and financial firms, government agencies, and E&P companies. The OGRC Update Subcommittee compiled and assimilated the public responses and made corrections, updates, and clarifications. This draft was submitted to the sponsoring societies and the other OGRC members for input and discussion leading to the final version.

The updated document was then approved by SPE and the six co-­sponsoring organizations:

• World Petroleum Council (WPC)
• American Association of Petroleum Geologists (AAPG)
• Society of Petroleum Evaluation Engineers (SPEE)
• Society of Exploration Geophysicists (SEG)
• Society of Petrophysicists and Well Log Analysts (SPWLA)
• European Association of Engineers and Geoscientists (EAGE)

The PRMS also provides the commodity-specific specifications for petroleum under the United Nations Framework Classification for Resources (UNFC).
The updated PRMS is now posted at www.spe.org/industry/reserves.

Major Principles Retained

PRMS continues to utilize the same foundation principles contained in the PRMS 2007 document:

1. The system is “project-based”
2. Classification is based on a project’s chance of commerciality
3. Categorization is based on recoverable uncertainty
4. The base case uses evaluator’s forecast of future conditions
5. Provides more granularity for project management
6. Estimates based on deterministic and/or probabilistic methods
7. Applies to both conventional and unconventional resources
8. Reserves/resources are estimated in terms of the sales quantities and allowing for fuel consumed in operations (CiO) when reported separately
9. Net resources are allocated based on contractual entitlement

Improving PRMS Clarity

While the industry has widely adopted the 2007 version of the PRMS, there were areas where clarification was required.

Fig. 1 graphically defines the PRMS resource classification system, a 2D framework in which projects are classified according to a project’s chance of commerciality being achieved (the chance a project will be committed for development and achieve commercial producing status), vertical axis; and estimates of recoverable quantities associated with each project are categorized based primarily on technical certainty, horizontal axis.

• Project maturity sub-classes in contingent resources are updated to separately define development on hold from development unclarified.
• C1, C2, and C3 and 1U, 2U, and 3U are new to reference the category ranges, and to differentiate them from low estimate/P90, best estimate/P50, and high estimate/P10.
• In a minor modification, production and the unrecoverable classes are now shown as subsets of petroleum initially in place (PIIP). This maintains mass balance such that production+reserves+contingent resources+unrecoverable=discovered PIIP.

Other areas where clarifications support consistency include:

• Contingent resources may include projects where commercial recovery is dependent on technology under development. Reserves classification requires use of established technology.
• Estimated ultimate recovery (EUR) must reference the associated technical and commercial conditions being applied.
• Technically recoverable resources (TRR) was added to reference those quantities of petroleum producible using currently available technology and industry practices, regardless of commercial considerations.
• Project sub-classes are recommended to be used to differentiate the contingent resource project variability of commerciality.
• Projects should not remain in the justified for development sub-class for extended time periods without positive indications that all required approvals are expected to be obtained without undue delay.
• The development scenarios may vary in the low-, best-, and high-estimate case with number and type of wells, facilities, and infrastructure. Multiple project scopes are present in early stages, contingent, and prospective resources. In later stages, as the project moves toward reserves, decision steps will generally align with a project or multiple projects.  
• Commercial criteria are associated with resource classes and not the individual categories.
• Split conditions and split classification are not permitted. A single set of defined conditions is applied for the resource categorization, and the classification of a project’s categories are assigned within a single resource classification.  
• Standalone possible reserves are not allowed; they must be an extension of a neighboring project with 2P.
• Reserves are estimated and reported in terms of petroleum sales quantities in their condition as delivered at the custody transfer point and thus available to the market. The option to include CiO quantities (consumed as lease fuel) in the reserves is allowed but must be separately identified from sales quantities as the project will appear to have a lower operating cost.
• Projects associated with undeveloped reserves should be implemented within 5 years from the initial classification date (with exceptions to be clearly justified). The “5-year rule” applies to the reserves class and not solely to the proved reserves category.
• Shale oil and shale gas are subtypes of tight oil and tight gas.
• In oil and gas developments with high well counts and a continuous program of activity (multiyear), the use of a learning curve within a resources evaluation may be justified to predict improvements in either the time taken to carry out the activity, the cost to do so, or both.
• Abandonment decommissioning and restoration (ADR) costs must be included in the economics for new investments. The economics for developed projects that are on production are generally not impacted by ADR unless specifically addressed in the contract terms when determining the economic limit.  
• A project is economic when the net revenue attributable to the entity interest from production exceeds the cost of operation.
• A project is commercial when the entity has demonstrated a firm intention to proceed with development based on satisfying the internal decision criteria (typically rate of return at or above the hurdle rate) and other technical and commercial criteria contingencies.

Next Steps

The OGRC will continue to maintain and update these best-practice resources assessment guidelines as technology and commercial conditions continue to evolve, working with its partners and other groups to realize global consistency in application. In addition, the SPE Board requested that the OGRC begin the process of developing workshops, training courses, and supplemental materials that will aid users in accurately interpreting the PRMS.

Acknowledgment

Members of the latest OGRC SPE PRMS Update Subcommittee are: Bernard Seiller, John Etherington, Dan Olds, Steve McCants, and Rawdon Seager, with direction from Melissa Schultea (SPE staff support).

Dan DiLuzio is reserves manager at Newfield Exploration. He has 33 years of global experience in the upstream sector in development and reserves/resources management with Shell International, EnCana, and Total E&P. DiLuzio led the SPE Oil and Gas Reserves Committee’s PRMS Update Project from its inception in 2014 to approval of the final document in 2018. He earned BS and MS degrees in petroleum engineering from Louisiana State University.