Uniform Definitions Considered

An Effort to ‘Harmonize the System’

Language differences present barriers not only for nations and cultures but for industries and sciences as well.

In one area -- reserve and resources classification -- several North American organizations are revising published guidelines, while the United Nations is taking a global view and trying to harmonize the guidelines with its own work in the area.

The projects are intertwined to ensure the interests of all stakeholders are served, according to people involved in the work.

As the petroleum industry has evolved in recent decades, so has the effort to classify and define resources and reserves.

The Society of Petroleum Engineers and World Petroleum Congress launched such a project in 1997; AAPG came aboard as a sponsor for revisions published in 2000. A 2007 update includes a new sponsor, the Society of Petroleum Evaluation Engineers. Thus, the effort is now known as the SPE/AAPG/WPC/SPEE Reserves and Resources Classification, Definitions and Guidelines.

Also referred to as the Petroleum Resource Management System, or RMS, the guidelines (expected to be approved in March by the SPE board of directors) were the subject of a paper at the recent AAPG Annual Convention in Long Beach, Calif.

The paper was co-authored by John Etherington of PRA International, Calgary, Canada, and John Ritter of Occidental Petroleum, Houston, chairman of the SPE Oil and Gas Reserves Committee.

Considerable industry input helped in forming the revised guidelines, Etherington said. A draft version was posted on the AAPG and SPE Web sites for industry review last October, supplemented by about 130 letters to companies and organizations around the globe requesting their comments.

Comments and proposed revisions also have been posted on various Web sites.

What’s New

The major revisions to the RMS, according to Etherington, help resolve ambiguities involving unproved reserves and contingent resources.

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Language differences present barriers not only for nations and cultures but for industries and sciences as well.

In one area -- reserve and resources classification -- several North American organizations are revising published guidelines, while the United Nations is taking a global view and trying to harmonize the guidelines with its own work in the area.

The projects are intertwined to ensure the interests of all stakeholders are served, according to people involved in the work.

As the petroleum industry has evolved in recent decades, so has the effort to classify and define resources and reserves.

The Society of Petroleum Engineers and World Petroleum Congress launched such a project in 1997; AAPG came aboard as a sponsor for revisions published in 2000. A 2007 update includes a new sponsor, the Society of Petroleum Evaluation Engineers. Thus, the effort is now known as the SPE/AAPG/WPC/SPEE Reserves and Resources Classification, Definitions and Guidelines.

Also referred to as the Petroleum Resource Management System, or RMS, the guidelines (expected to be approved in March by the SPE board of directors) were the subject of a paper at the recent AAPG Annual Convention in Long Beach, Calif.

The paper was co-authored by John Etherington of PRA International, Calgary, Canada, and John Ritter of Occidental Petroleum, Houston, chairman of the SPE Oil and Gas Reserves Committee.

Considerable industry input helped in forming the revised guidelines, Etherington said. A draft version was posted on the AAPG and SPE Web sites for industry review last October, supplemented by about 130 letters to companies and organizations around the globe requesting their comments.

Comments and proposed revisions also have been posted on various Web sites.

What’s New

The major revisions to the RMS, according to Etherington, help resolve ambiguities involving unproved reserves and contingent resources.

Contingent resources may look similar to reserves but can’t be classified as such because of some contingency like lack of infrastructure or environmental concerns, Etherington said.

Revisions emphasize the status of a development project applied to a reservoir; the project maturity modifiers included in the 2001 supplemental guidelines have been modified and formalized as sub-classes, he said.

“The focus on the project as a key enabler in the classification system is a major shift,” he said.

“There’s no change in the major classifications -- just a sharpening of boundaries.”

The prior Reserves Status modifiers (developed producing, developing non-producing and undeveloped) are unchanged; Economic Status modifiers have been added that subdivide contingent resources.

  • Marginal Contingent Resources are associated with technically feasible projects that are economic or projected to be economic, but are currently not committed to development.
  • Sub-Marginal Contingent Resources are discoveries that lack enough data for a recovery plan, or appear to be technically feasible but not economic under current or forecast improvements in conditions.

A goal of the revisions is to align the RMS with real-world commercial evaluation processes. It is recognized that companies base their decisions on projects evaluated using their internal forecasts on future conditions, including costs and prices.

The RMS is applicable to both conventional and unconventional resources, Etherington said.

“These are not disclosure guidelines for companies, but internal guides for managing their business,” he said.

“We looked at eight (international classification) systems ... and where they were better we adopted those ideas,” he added.

The 2007 RMS consolidates, builds on and replaces the 1997, 2000 and 2001 guidelines, and also includes an update of the 2005 glossary as an appendix.

United Efforts

The United Nations Framework Classification was developed for solid fuel and mineral resources. A mandated effort to expand the UNFC to include fossil fuels began in 2002.

The resulting UNFC for Energy and Mineral Resources was the subject of another paper that was presented in Long Beach by Thomas S. Ahlbrandt of Petrohunter Energy Corp. in Denver.

“It’s an effort to harmonize the system for oil and gas, coal and uranium,” Ahlbrandt said.

The UNFC categorizes resources and reserves using three sets of criteria -- economic viability, field project status and feasibility, and level of geologic knowledge.

The project maturity categories from the 2001 SPE/WPC/AAPG supplemental guidelines served as the basis for field project status criteria.

The ad hoc group of experts charged with updating the UNFC includes Ritter and other representatives from SPE, AAPG sections in the United States and Europe, OPEC, the Russian Federation and several other groups.

Involving so many interests is no accident, Ahlbrandt said.

“AAPG played a significant role all along in this -- some of the original definitions were developed in the 1920s in cooperation with the USGS (U.S. Geological Survey),” he said.

The UNFC is “trying to cover everything from diamonds to coal -- it’s tricky,” said Etherington, who, like several other AAPG and SPE members, also is involved with the UNFC and IASB projects.

Complicating the missions are the many classification systems used by different countries, individual companies and government agencies.

The U.S. Securities and Exchange Commission has certain requirements, and U.S. tax law is independent of that, Ahlbrandt said. Canadian firms have to deal with their own government’s regulations, he said.

“Definitions didn’t translate easily,” he said.

The UNFC uses a numerical system to describe field developments, avoiding some of the language problems, he said.

Exercises allowing users to “map” a project from the RMS or other systems to the UNFC have been developed to show the system’s transparency, he said.

The framework recognizes the increasing worldwide importance of contingent and unconventional resources, he said.

“These are not trivial exercises,” he said, “yet real progress has been made.”

‘Worthwhile Effort’

Ken Mallon, liaison between SPE’s Oil and Gas Reserves Committee and AAPG, and an AAPG representative on the UNFC committee, said that making the RMS and UN system compatible is a “huge ... worthwhile effort.

“There also is considerable effort to map petroleum to hard minerals classifications,” Mallon said, “and to have the same meaning in the financial world.”

Arriving at consensus with 45 to 50 representatives from various countries and industries takes “an enormous amount of time -- it won’t happen overnight, especially with resources in question around the world,” he added.

Despite the amount of work and publicity the projects involve, none of the systems is imposed upon anyone.

In Etherington’s words: “Our only power is industry acceptance.”