PETROLEUM RESERVES AND RESOURCES: Standardization of Petroleum Resources Classification

Prof. Dr. H.Z. Harraz Presentation
PETROLEUM RESERVES AND
RESOURCES
Hassan Z. Harraz
hharraz2006@yahoo.com
2015- 2016
This material is intended for use in lectures, presentations and as
handouts to students, and is provided in Power point format so as to
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Please see hharraz2006@yahoo.com for contact details.

Prof. Dr. Hassan Z. Harraz
Geology Department, Faculty of
Science, Tanta University
hharraz2006@yahoo.com
2015 - 2016
INTRODUCTION
TO
PETROLEUM ECONOMICS
GP4208
© Hassan Harraz 2016

OUTLINE OF LECTURES:
Lecture 1: Petroleum Reserves and Resources Classification
Lectures 2 & 3: Petroleum Industry Structure – Oil Companies
Lectures 4 & 5: Petroleum sector: Fiscal regimes
Lecture 6: Geographic Location: Benchmarks of Crude Oils
Lectures 7 & 8: World Petroleum Reserves
Lectures 9 &10: Crude Oil Supply and Demand
Lecture 11 : Oil Price Formation:
The Functioning of the International Oil & Gas Markets
Lecture 12: Global Crude Oil Market
Lecture 13: Crude Oil Futures Trading
© Hassan Harraz 2016 4

An Introduction to INTRODUCTION TO PETROLEUM
ECONOMICS is to geophysists.
This course provides a non-technical introduction to the
basic concepts of:
Introduction
 Crude Oil;
 Petroleum Reserves and Resources Classification,
 Petroleum industry structure, and Oil companies,
 Petroleum sector: Fiscal regimes, and Types of petroleum contracts agreement;
 Crude Oil Quality, and Benchmarks of Crude Oils;
 World Petroleum Reserves, Crude Oil Supply and Demand; Oil Price Formation,
Energy Trends and Technologies for the Coming Decades; and Crude Oil Futures
Trading.
 With numerous examples, charts, figures and images of Petroleum and gas
industries.
 Also included are some key aspects of the economics of a Petroleum sector:
Fiscal regimes and the International Oil & Gas Markets operation and some ideas
about the future of Petroleum.

1) HISTORY OF USE
 Babylonians first used oil tar for mortar in building structures.
 The Egyptians also used oil products for embalming mummies around that
time.
 The Romans used crude oil in lamps.
• Arab scientists discovered distillation and were able to make kerosene.
This was lost after the 12th century!
 Rediscovered by a Canadian geologist called Abraham Gesner in 1852
 In 1854, the invention of the kerosene lamp led to the formation of the first
American Oil Company.
 1858: first oil drilled in Canada
 In 1859, Romania was the center of the world oil industry where 150 villages
mined 36,000 barrels per year from oil seeps.
 1859: Edwin Drake..!
Who is he?
He was the first person in the U.S. to drill for oil
Where?
Titusville, Pennsylvania
 Initial cost: $20 per barrel, within three years dropped to 10 cents
Burn rocks
whalelamp

Petroleum is a general term for all naturally occurring hydrocarbons (hydrogen + carbon)
 Solid Hydrocarbons: Asphalt
 Liquid Hydrocarbons: Crude oil
 Gas Hydrocarbons: Natural Gas: methane, butane, propane, etc.
Source Rocks (i.e., Oil Shale)
The simplest hydrocarbon is Methane
(CH4) {Nature gas}
What is petroleum?

Capital&EnergyRequirementsIncrease
 Carbon Content & Contaminants Increasing
Natural
Gas
Bitumen CoalNatural Gas
Liquids
Condensate Light Sweet
Crude
Heavy Sour
Crude
Different types of organic fuel

1 BARREL OF OIL
= 5.8 X 10 6 BTU
= 42 US gallons = approx. 159 litres
1 cubic metre = 35.315 cubic feet = 6.2898 barrels
1 tonne of crude oil = approx. 7.3 barrels
ENERGY CONVERSIONS
Tonne of oil equivalent
The tonne of oil equivalent (toe) is a unit of energy defined as the amount of energy released by
burning one tonne of crude oil.
Mtoe, one million toe
gigatoe (Gtoe, one billion toe).
A smaller unit of kilogram of oil equivalent (kgoe) is also sometimes used denoting 1/1000 toe.
 1 toe = 39,683,205.411 BTU
 1 toe = 7.11, 7.33, or 7.4 barrel of oil equivalent (boe)
 1 barrel of oil equivalent (boe) contains approximately 0.146 toe (i.e. there are approximately 6.841 boe
in a toe).

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Lecture # 1
PETROLEUM RESERVES AND
RESOURCES:
Standardization of Petroleum Resources
Classification

2007 SPE PRMS 2009 SEC’s Modernization
Of Oil and Gas Reporting
Securities and Exchange
Commission (SEC)
Reserves Definitions
Side By Side Comparison of
U.S. SEC vs. SPE-PRMS
Reserves Definitions

Outline of Lecture:
 Overview
 HISTORY OF USE
 INTRODUCTION
 BASIC TERMS
 CLASSIFICATION OF PETROLEUM RESOURCE TYPES:
I) Classification Framework of Petroleum Resources
1) RESOURCES
1.1) Prospective Resources: Prospective Resources Uncertainty Categories:
1.2) Contingent Resources:
2) RESERVES
2.1) Proven Reserves
2.2) Unproven Reserves
II) Project Maturity Stages:
1) EXPLORATION PROJECT STAGE:
1.1) Before Exploration Drilling:
1.2) After Exploration Drilling:
b) Development Not Viable
c) Development Unclarified or on Hold
d) Development Pending
Prospect Evaluation
2) DEVELOPMENT PROJECT STAGE:
2.1) Justified for Development
2.2) Approved for Development
3) PRODUCTION PROJECT STAGE:
4) RESOURCES TOTALIZATION
 OIL AND GAS PROJECT EVALUATION STAGES
 Oil Project Time Line

WHY IS A RESERVES DEFINITION NEEDED?
 Most of the parameters that define the reserves of a Reservoir
cannot be measured directly, and must be determined
indirectly through geologic and reservoir engineering analysis
and interpretations.
 As a result, the estimates of oil and gas reserves have an
intrinsic uncertainty.
 The Definitions of reserves are designed to promote uniformity
and a standard measurement of the assets, providing a structure
to quantify risk and uncertainty through its categorization.

Fig. :. A visual definition of resources
and reserves.
The volume of oil and gas that is present beneath
the earth’s surface can be classified in several ways.
Figure illustrates one classification, from the resource
(undiscovered, total estimated) to the reserves (either
proven or probable at a given price). Determining the
resource and reserves at any one time is a difficult task, and
the values will change over time.
As shown in Figure , undoubtedly the total anticipated
resource is not accessible to exploration, for geographic,
political, and economic reasons. However, what is not
accessible today may become accessible in the future, so that
the total resource can change with time.
Then, once the resource is identified and discovered,
only a percentage of it may be technically recoverable.
However, future technologies (some of which will focus on
improved reservoir characterization) will modify this
percentage from time to time. Finally, although the resource
might be technically recoverable, economics will dictate how
much is produced at a given time and price. Because global
and local economics change more or less continually, the
amount of resource that is actually extracted or extractable
will also vary with time. It is this amount of the resource that
can be considered the reserves, both proven and probable.

1) INTRODUCTION
 Petroleum discovery differentiates between Prospective Resources and Contingent
Resources (Fig.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. Discovered (or known) accumulations are classified
as Contingent Resources or Reserves, while yet-to-be-discovered accumulations are
classified as Prospective Resources.
 Commerciality differentiates between Contingent Resources and Reserves (Fig.1).
Quantities of known accumulations can be evaluated as Reserves, only if they are
commercial on both technical and economical point of view at a given date. The term
“Commercial” indicates recoverable by application of development projects to known
accumulations from a given date forward under defined conditions.
 Resources are classified based on range of uncertainty for available information at a
given date and project maturity according to increasing chance of commerciality (Figs. 3
and 4).
 Proved reserves of crude petroleum are quantities of petroleum that geological and
engineering information indicates with reasonable certainty can be recovered in the future
from known Reservoirs under existing economic and operating conditions (BP, 2012).

Figure 2: Project Based System
Figure 1: Superordinate classification of
petroleum resources
Petroleum resources are classified into three classes (Figs.1 & 2) :
Prospective Resources
Contingent Resources, and
Reserves
Production
1.1) Classification Framework of Petroleum Resources
Resources

Basic TermsPetroleum Initially in Place (PIIP)
 PIIP 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.
 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.
 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.
Unrecoverable Discovered (or Undiscovered Petroleum Initially in Place)
 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.
 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.
Range of Uncertainty
 The horizontal axis in the Resources Classification (Figure 4) defines the range of uncertainty in estimates of the quantities of recoverable, or
potentially recoverable, petroleum associated with a project.
 The range of uncertainty of the recoverable and/or potentially recoverable volumes may be represented by either deterministic scenarios or by a
probability distribution
Increasing Chance of Commerciality
 The vertical axis in the Resources Classification (Figure 1) represents the Chance of Commerciality, that is, the chance that the project that will be
developed and reach commercial producing status.
Determination of Commerciality
 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
 Discovered recoverable volumes may be considered commercially producible, and thus Reserves, if license holder possess authority on the license
renewal and demonstrate there newal history at the expiration of duration of license.

Figure 3: Conceptual scheme for oil and gas resources and reserves.
The term “Resources” is
generally applied to all
quantities of petroleum
(recoverable and
unrecoverable) naturally
occurring on or within the
Earth’s crust, discovered and
undiscovered, plus those
quantities already produced.
2) CONCEPTUAL SCHEME FOR OIL AND GAS RESOURCES AND RESERVES
Discovered Undiscovered
Non-recoverable
Resources
Recoverable
Resources
Reserves
Proved
Reserves
Unproved
Reserves
Probable
Reserves
Possible
Reserves
Cumulative
Production
Total Oil and Gas Resources

 Petroleum resources classification based on
Project maturity stages into (Fig.4):
a) Play
b) Lead
a) Prospect
b) Development Not Viable.
c) Development Unclarified or on Hold.
d) Development Pending.
3.1) On Production
II) Project Maturity Stages
I) Classification Framework of Petroleum Resources
3) CLASSIFICATION OF PETROLEUM RESOURCE TYPES
Petroleum resources are classified into three
classes (Figs.1 & 4) :
1) RESOURCES:
1.1) Prospective Resources
1.2) Contingent Resources
2) RESERVES:
2.1) Proven Reserves (1P: Best Estimate):
a) Proven Developed (PD) reserves.
b) Proven Undeveloped" (PUD) reserves
2.2) Unproven Reserves:
a) Probable reserves (2P: Best Estimate)
b) Possible reserves (3P: High Estimate)

Figure 4: Petroleum Resource Classification Scheme (SPE/WPC/AAPG, 2011)

Fig.5: KEY ELEMENTS OF RESOURCES
Unrecoverable
Prospective Resources
Recoverable
• Contingent Resources
• Reserves
• Production
Discovered
PIIP
Undiscovered
PIIP
Total Petroleum Initially In-Place
(PIIP)
Total Resources

I) CLASSIFICATION FRAMEWORK OF PETROLEUM RESOURCES
1) RESOURCES:
1.1) PROSPECTIVE RESOURCES
1.2) CONTINGENT RESOURCES
2) RESERVES:
2.1) Proven Reserves (1P: Best Estimate):
a) Proven Developed (PD) reserves.
b) Proven Undeveloped" (PUD) reserves
2.2) Unproven Reserves:
a) Probable reserves (2P: Best Estimate)
b) Possible reserves (3P: High Estimate)
Petroleum resources are classified into three classes (Figs.1 & 4) :

1) RESOURCES
 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.
 Resources are divided into two subcategories (Figure 5):
1.1) Prospective Resources:
 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.

 The United States Geological Survey uses the terms technically and economically
recoverable resources when making its petroleum resource assessments:
Technically recoverable resources: represent that proportion of assessed in-
place petroleum that may be recoverable using current recovery technology,
without regard to cost.
Economically recoverable resources: are technically recoverable petroleum for
which the costs of discovery, development, production, and transport, including a
return to capital, can be recovered at a given market price.
 Prospective Resources Uncertainty Categories:
 Low Estimate
 A conservative 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.
 Best Estimate
 A best estimate of the quantity that will actually be recovered from the accumulation by the
project.
quantities actually recovered will equal or exceed the best estimate.
 High Estimate
 An optimistic estimate of the quantity that will actually be recovered from an accumulation by
a project
quantities actually recovered will equal or exceed the high estimate.
1.1) Prospective Resources…..(Cont.):

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 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 as 1C, 2C, and 3C in accordance with
the level of certainty associated with the estimates and may be subclassified based on
project maturity and/or characterized by their economic status.
Contingent Resources Uncertainty Categories
1C: Low estimate
2C: Best estimate
3C: High estimate
1.2) Contingent Resources:

2) RESERVES
 Oil reserves are the amount of technically and economically recoverable oil. Reserves may be
for a well, for a reservoir, for a field, for a nation, or for the world.
 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 classified based on range of uncertainty for available information at a given date
and project maturity according to increasing chance of commerciality (Figure 5).
 All reserve estimates involve uncertainty, depending on the amount of reliable geologic and
engineering data available and the interpretation of those data. The relative degree of
uncertainty can be expressed by dividing reserves into two principal classifications-"Proven" (or
"proved") and "Unproven" (or "unproved").
 Unproven reserves can further be divided into two subcategories: "Probable" and "Possible“
to indicate the relative degree of uncertainty about their existence.
 Reserves are categorized as Proved, Probable, and Possible according to uncertainty (Table 1):
 1P: Proved Reserves (Low Estimate)
 2P: Sum of Proved plus Probable Reserves (Best Estimate)
 3P: Sum of Proved plus Probable plus Possible Reserves (High Estimate)
 The total estimated amount of oil in an oil reservoir, including both producible and non-
producible oil, is called Oil in Place. However, because of reservoir characteristics and
limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the
surface, and it is only this producible fraction that is considered to be Reserves.
 The ratio of reserves to the total amount of oil in a particular reservoir is called the Recovery
Factor. Determining a recovery factor for a given field depends on several features of the
operation, including method of oil recovery used and technological developments.
 Many oil-producing nations do not reveal their reservoir engineering field data and instead
provide unaudited claims for their oil reserves. The numbers disclosed by some national
governments are suspected of being manipulated for political reasons.

Category Definition Guidelines
Proved
Reserves
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.
 Reserves in undeveloped locations may be classified as Proved provided that:
1) The locations are in undrilled areas of the reservoir that can be judged with
reasonable certainty to be commercially productive.
2) Interpretations of available geoscience and engineering data indicate with
reasonable certainty that the objective formation is laterally continuous with
drilled Proved locations.
 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.
 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.
Probable
Reserves
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.
 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.
 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
Possible Reserves are those
additional reserves which analysis of
geoscience and engineering data
indicate are less likely to be
recoverable than Probable Reserves.
 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.
 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
Table 1: Reserves Category Definitions and Guidelines

2.1) Proven Reserves
 Proven reserves are those reserves claimed to have a reasonable certainty (normally
at least 90% confidence) of being recoverable under existing economic and political
conditions, with existing technology.
 Industry specialists refer to this as P90 (i.e., having a 90% certainty of being produced).
 Proven reserves are also known in the industry as 1P (Low Estimate).
 Proven reserves are further subdivided into:
a) Proven Developed (PD) reserves: are reserves that can be produced with
existing wells and perforations, or from additional reservoirs where minimal
additional investment (operating expense) is required.
b) Proven Undeveloped" (PUD) reserves: require additional capital investment
(e.g., drilling new wells) to bring the oil to the surface.

2.2) Unproven Reserves
 Unproven reserves are based on geological and/or engineering data similar to that used in
estimates of proven reserves, but technical, contractual, or regulatory uncertainties
preclude such reserves being classified as proven. Unproven reserves may be used
internally by oil companies and government agencies for future planning purposes but are
not routinely compiled.
 Unproven reserves are sub-classified as probable and possible:
a) Probable reserves are attributed to known accumulations and claim a 50%
confidence level of recovery. Industry specialists refer to them as "P50" (i.e., having a
50% certainty of being produced). These reserves are also referred to in the industry as
"2P". 2P is sum of Proved plus Probable Reserves (Best Estimate).
b) Possible reserves are attributed to known accumulations that have a less likely
chance of being recovered than probable reserves.
 This term is often used for reserves which are claimed to have at least a 10%
certainty of being produced ("P10").
 Reasons for classifying reserves as possible include varying interpretations of
geology, reserves not producible at commercial rates, uncertainty due to
reserve infill (seepage from adjacent areas) and projected reserves based on
future recovery methods.
 They are referred to in the industry as "3P" {proven plus probable plus
possible Reserves (High Estimate)}.

Category Definition Guidelines
Developed
Reserves
Developed Reserves
are expected
quantities to be
recovered from
existing wells and
facilities.
 Reserves are considered developed 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.
 Where required 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
Producing
Reserves
Developed Producing
Reserves are
expected to be
recovered from
completion intervals
that are open and
producing at the time
of the estimate.
 Improved recovery reserves are considered producing only after the improved recovery
project is in operation.
Developed
Non-
Producing
Reserves
Developed Non-
Producing Reserves
include shut-in and
behind-pipe Reserves.
 Shut-in Reserves are expected to be recovered from
1) completion intervals 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 expected to be recovered from zones in existing wells which
will require additional completion work or future recompletion 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
Undeveloped
Reserves are
quantities expected to
be recovered through
future investments:
1) from new wells on undrilled acreage in known accumulations,
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
 recomplete an existing well or
Table 2: Reserves Status Classification and Guidelines

II) PETROLEUM RESOURCES CLASSIFICATION BASED
ON PROJECT MATURITY STAGE
a) Play
b) Lead
a) Prospect
b) Development Not Viable.
c) Development Unclarified or on Hold.
d) Development Pending.
2.1) Justified for Development.
2.2) Approved for Development.
3.1) On Production.
Petroleum resources classification based on Project maturity stages into four subcategories as
following (Fig.4):

 EXPLORATION PROJECT:
 A project including geological and geophysical survey, geochemical prospecting,
exploration and evaluation drilling, and project feasibility study to prospect
undiscovered petroleum.
 Resources class: Prospective Resources (Undiscovered)
 Project maturity sub-class: Nonrated, Play, Lead, and Prospect
 Prospective Resources Uncertainty Categories: Low Estimate, Best
Estimate, and High Estimate.
 Estimation method: Analogs and Probabilistic method (Deterministic
method is inappropriate for the estimation due to that input parameters
are unpredictable).
 Representative value: Mean referenced with P10, P50, and P90 values
from probabilistic method.
The goal of The Exploration process is to reduce technical uncertainty
and narrow the risk estimates on the prospect portfolio through systematic
basin, play and acreage analysis.

 Undiscovered Resources:
Class: Prospective Resources.
Project maturity sub-class: Prospect.
 Discovered Resources:
Class: Contingent Resources.
Project maturity sub-class: Development Pending, Development Unclarified
or On Hold, and Development Not Viable.
 Contingent Resources Uncertainty Categories: 1C, 2C, and 3C
 Analysis of engineering data from evaluation drilling designed to move the project to
the level of development and production is required to justify project maturity and
commerciality.
 Estimation method: Volumetric Estimate of Deterministic and Probabilistic method.
 Representative value of Contingent Resources: 2C referenced with 1C.

 Discovery with enough hydrocarbons to justify ongoing activities to confirm
commercial development in the foreseeable future:
 Reasonable potential for development subject to confirmation with ongoing
data acquisition and investigations.
 Critical contingencies identified and reasonable expectations to resolve
them.
 Disappointing appraisal may lead to downgrading to “On-hold” or “Not
Viable” .
 Project decision gate is decision to move forward with appraisal and
confirmation.
d) Development Pending
Actively
Appraising
 Discovery with activities on hold and commercial development
may be significantly delayed:
 Project seen as having eventual commercial development
potential.
 Pending removal of significant contingencies.
 Substantial further appraisal is necessary to clarify potential.
c) Development Unclarified or on Hold
Tempting,
let's wait &
spend
somewhere
else.
had not
spent that money!
Wish
b) Development Not Viable
 Discovery with limited production potential:
 A discovered accumulation for which there are no current plans to develop or to
acquire additional data at the time due to limited production potential.
 No current plans to appraise.
 Project not seen as having commercial potential for eventual development.
 Keep theoretical recoverable quantities in the event of major technology or
commercial conditions .
 Project decision gate not to undertake any further actions for the foreseeable future.

Prospect Evaluation
 A prospect is identified and mapped on the basis of geophysical and geological data. Lead is
an indication of presence of play.
 Quantitative data for the prospect is derived from the most likely geological model and is given
with a range of uncertainty.
 Risk is assigned to the probability of discovery of a minimum volume derived from volumetric
estimate, and is evaluated with respect to the geological risk.
 Reliability of the prospect definition will depend on the adequacy of the database and on the
choice of reliable models for the relevant geological factors.
 Risk assessment is an analysis of the reliability of occurrence of the geological models
relevant to the prospect under evaluation.
 For each prospect a value of probability of discovery is Estimated
 For resource estimation in any basin, petroleum system, prospects and leads are identified on
the basis of geophysical and geological data.
 Estimation of hydrocarbon resources in any basin/petroleum system is made following
volumetric method and using risk factor.
 Hydrocarbon is distributed in the earth’s crust.
 Hydrocarbon deposits are concentrated in relatively few basins.
 Exploration is not an equal chance game.
Note that:
Nonrated is meaning that a project on research phase and project not yet considered mature
enough for play class.

 Four different concepts of exploration:
 Basin framework: Sedimentary basin containing source rock, reservoir, trap and migration in
proper timing
 Play: Play is the elemental part of a petroleum system, and recognized as having one or more
hydrocarbon accumulations identified by common geological character of reservoir, trap, and
seal; timing and migration; preservation.
 Lead: Poorly defined potential accumulation: Requires more data acquisition or evaluation.
Activities include further analysis to confirm whether or not the lead can be mature into a
prospect. Chance of discovery, range of potential recovery under feasible development scenarios.
 Petroleum System Framework (Acreage): Defined as a volume of sedimentary rock containing
hydrocarbon and charged by source rock. In a defined system there will be single source rock.
Prospect Evaluation … (cont.)
Play
 Prospect:
 Geological Model and risk assessment: Geological risk assessment
requires evaluation of geological factors that are critical to the discovery
of hydrocarbons in a mapped prospect.
 The probability of discovery is defined as the product of the
following major probability factors, each of which must be evaluated
with respect to presence and effectiveness.
 Reservoir; Reservoir, Presence of Reservoir facies; Trap, Trap
Mechanism; Presence of mapped structure; Effective seal
mechanism; Petroleum charge; Presence of mature source
rock (sufficient); Effective migration; Charging, Effective pore
volume; Retention and Accumulation; Retention after
accumulation

Basin Analysis Play Analysis Prospect Analysis
 Prospect mapping.
 Voumetrics.
 Calibration to Play models.
 Reservoir Properties
 Risk
 Volumes.
 Portfolio Management.
Play delineation
mapping.
Play Risk analysis.
Common Risk.
Segment analysis.
Play stats:
YTF, FSD,s,
Creaming Curves
The Exploration process: The goal is to reduce technical uncertainty
and narrow the risk estimates on the prospect portfolio through
systematic basin, play and acreage analysis.
 Depositional
systems analysis.
 Tectonic and
structural history.
 Hydrocarbon
migration & timing,
 Stratigraphic &
Sequence Analysis.
 Basin Analysis:
 TF, FSD,s,
Creaming
Curves.
 External data integration
(Environment, Facies).
 Basin Play data.
integration & summation.
 Ranking criteria
definition & weighting.
 Average ranking &
opportunity selection.
 Portfolio analysis.
PalyBasin ProspectAcreage
Acreage Analysis
Prospect Evaluation

Pennsylvania has considerable coal and considerable gas in
shale formations. The coal is relatively “dirty”—high in
contaminants such as sulfur. The gas is far below the surface
in the Marcellus and Utica shales.

Marcellus shale

Types of Natural Gas Plays

Stages In The Generation of
An Integrated Geological Reservoir Model
Log Analysis
Well Test Analysis
Core Analysis
Regional Geologic
Framework
Depositional
Model
Diagenetic
Model
Integrated
Geologic Model
Applications Studies
Model Testing
And Revision
Structural
Model
Fluid
Model
(As Needed)
(As Needed)
Geologic Activities
Reserves Estimation
Simulation

Will Spend
Money
All approvals obtained, capital funds committed & project is underway:
 Certainty that project is going forward.
 No outstanding approvals or sales contracts.
 Committed budget should be part of the approved budget.
 Project decision gate is to start investments and construction.
Spending
Money
 A project associated with acquisition of rights and stake purchase for discovered petroleum fields or
development fields and installation of production and transportation facilities.
 Project maturity sub-class: Approved Development and Justified for Development.
 Uncertainty categories: Proved, Probable, and Possible Reserves.
 Estimation method: Volumetric Estimate of Deterministic and Probabilistic method, and Reservoir
Simulation.
 Representative value: 2P (Proved plus Probable) referenced with 1P (Proved).
 Projects justified economically based on reasonable commercial forecast :
 Reasonable expectation that all approvals will be obtained.
 Development plan with sufficient detail to support claim of commerciality.
 Reasonable expectations to obtain regulatory approvals and sales
contracts.
 Project decision gate is notification of project maturity to proceed with
development at that point in time.

 A project including acquisition of rights and stake purchase for production fields, installation
of production and associated facilities, and drilling to secure additional reserves
 Project maturity sub-class: On Production
 Uncertainty categories: Proved, Probable, and Possible Reserves with cumulative
production volume
 Estimation method: Volumetric Estimate of Deterministic and Probabilistic method,
Reservoir Simulation, Decline Curve method, and Material Balance
 Representative value: 2P (Proved plus Probable) referenced with 1P (Proved)
 Abandonment pressure should be considered for commercial production.
 When total reserves of petroleum fields or a company need to be evaluated,
the principle of resources totalization is to add all the quantities together within
the same class.
3.1) On Production
Project is on production and selling hydrocarbons:
 Receiving income versus simply a completed project.
 Project chance of commerciality is 100%.
 Project decision gate is the decision to initiate commercial
production.
 The development project is currently producing and selling petroleum to
market.
 Production is the cumulative quantity of petroleum that has been
recovered.
Making
Money

OIL AND GAS PROJECT EVALUATION STAGES
Approximate Time (in years)

Oil Project Time Line

Petroleum Resources Management System (PRMS)

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PETROLEUM RESERVES AND RESOURCES: Standardization of Petroleum Resources Classification