PRMS Workshop 14 November 2013 Session xx:

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1 PRMS Workshop 14 November 2013 Session xx: *PRMS areas for clarification and improvement - Greg Horton - Chief Reserves Engineer Santos - Member of the SPE OGRC, PRMS Improvements sub-committee and JCORET *The material here-in are opinions are of the presenter not necessarily of Santos Ltd or SPE OGRC 1

2 Topics PRMS Overview Secrets of PRMS Success Plan to improve Methodology for identifying improvements Example Results Proforma recommendation concept Example Issues Discussion

3 PRMS Overview (1) Source: R Seager (SPE Workshop on Application of the PRMS Houston Aug 2013)

4 PRMS Overview (2) Source: R Seager (SPE Workshop on Application of the PRMS Houston Aug 2013)

5 PRMS Overview (3) Source: R Seager (SPE Workshop on Application of the PRMS Houston Aug 2013)

6 Secrets of PRMS Success (1) Source: J Tenzer (SPE Workshop on Application of the PRMS Houston Aug 2013)

7 Secrets of PRMS Success (2) Source: J Tenzer (SPE Workshop on Application of the PRMS Houston Aug 2013)

8 Secrets of PRMS Success (3) Source: J Tenzer (SPE Workshop on Application of the PRMS Houston Aug 2013)

9 But we can always improve! Source: D Diluzio (SPE Workshop on Application of the PRMS Houston Aug 2013)

10 Plan Forward (1) Source: D Diluzio (SPE Workshop on Application of the PRMS Houston Aug 2013)

11 Plan Forward (2) Source: D Diluzio (SPE Workshop on Application of the PRMS Houston Aug 2013)

12 Plan Forward (3) Source: D Diluzio (SPE Workshop on Application of the PRMS Houston Aug 2013)

13 Methodology for Identifying Improvements (1) Guiding principle SPE PRMS is fundamentally an excellent system held in high regard around the world and can be improved without making wholesale changes.

14 Methodology for Identifying Improvements (2) Transpose all PRMS into a spreadsheet to examine text paragraph by paragraph Critically examine text and identify potential issues some paragraphs have more than one issue Establish categories to group similar issues by paragraph Stakeholder Engagement critical these for example! Develop an Improvements Register to address the issues some issues can be addressed by one improvement, some require more than one improvement Iterative! Prioritise issues and identify dependencies some issues need to be resolved first to allow others to be resolved will be iterative Develop Proforma for addressing issues consistently Trial proforma, finalise and assign appropriate people to develop a recommendation for each issue -> approval Consolidate into a PRMS revision for overall review and approval

15 Example Results Kinds of issues categories that emerge Project definition / maturity Petroleum / FFV / raw vs in sales product terms / shrinkage Commercial vs Economic Discovery Test / Booking Contingent Resources / Technology under Development / Unconventionals Economic Status vs Project Maturity Status Definition consistency &/or clarity / General tidy ups

16 Proforma draft recommendation Proposal statement Alternatives Argument for the proposal Argument against the proposal PRMS sections affected Applications Guidelines impact Implications for: Existing bookings Compare to other systems Recommendation for PRMS change

17 This flowchart was derived from AG Chap 2 Ross CR Classification Flowchart Using Economic Status Sub-classes Particularly for Technology Under Development Technology commercially viable in analog? In the subject reservoir not too far away! Y Evaluation complete? Y Technically feasible? Y Contingencies present? N Reserves Y N How non analogus can they be? Y What is the project? Defined or Undefined? Technology commercially viable in non-analogous reservoirs Y Pilot project planned and budgeted? What does this mean? What statistical data set is required? N N Economic Using Expected or High Side Assumptions? N Unrecoverable Resources Not in PRMS Glossary? Y Y N CRs to be evaluated at defined conditions? Should there be a limit to assumptions? N What time frame is ok? What about experimental technology Unrecoverable Resources Unrecoverable Resources What range of uncertainty should be booked per PRMS? Undetermined Contingent Resources Unrecoverable Resources Sub-Marginal Contingent Resources Marginal Contingent Resources

18 What can/should be booked per PRMS at the various stages of evaluation? Per Creties Jenkins short course, though flow chart is industry standard

19 Chance of Commerciality All Contingent Resources (CRs) are the same, it is just a matter of getting a market and they will convert to Reserves? No, range in uncertainty is often far wider than Reserves, with differing levels of barriers affecting chance of commerciality. Well understood Economic or reasonable potential to be economic Few barriers Clear path to commerciality SPE-PRMS term Marginal CR Poorly understood Unable to reliably determine economics Barriers evident, especially technical Unclear path to commerciality SPE-PRMS refce Undetermined Candidates for Unrecoverable Well understood Uneconomic and unlikely to be economic With or with out barriers Unclear path to commerciality SPE-PRMS term Sub-Marginal CR S Quality of CR

20 On commercialisation, will the 1C->1P, 2C -> 2P, 3C -> 3P? It depends, maybe SPE-PRMS should have different shape?..? 1C, 2C, 3C at time of commercialisation are likely to be different from when first put on the books. $, time and study will alter the uncertainty range. Tranches may commercialise. Some may become Unrecoverable. S

21 Eg Do Proved Reserves need to be economic per PRMS? The resources evaluation process consists of identifying a recovery project, or projects, associated with a petroleum accumulation(s), estimating the quantities of Petroleum Initially-in-Place, estimating that portion of those in-place quantities that can be recovered by each project, and classifying the project(s) based on its maturity status or chance of commerciality. Projects may be further characterized by their Economic Status. All projects classified as Reserves must be economic under defined conditions (see Commercial Evaluations, section 3.1). Based on assumptions regarding future conditions and their impact on ultimate economic viability, projects currently classified as Contingent Resources may be broadly divided into two groups: While each organization may define specific investment criteria, a project is generally considered to be economic if its best estimate case has a positive net present value under the organization s standard discount rate, or if at least has a positive undiscounted cash flow. Evaluations may be modified to accommodate criteria imposed by regulatory agencies regarding external disclosures. For example, these criteria may include a specific requirement that, if the recovery were confined to the technically Proved Reserves estimate, the constant case should still generate a positive cash flow. External reporting requirements may also specify alternative guidance on current conditions (for example, year-end costs and prices). There may be circumstances in which the project meets criteria to be classified as Reserves using the forecast case but does not meet the external criteria for Proved Reserves. In these specific circumstances, the entity may record 2P and 3P estimates without separately recording Proved. As costs are incurred and development proceeds, the low estimate may eventually satisfy external requirements, and Proved Reserves can then be assigned. While SPE guidelines do not require that project financing be confirmed prior to classifying projects as Reserves, this may be another external requirement. In many cases, loans are conditional upon the same criteria as above; that is, the project must be economic based on Proved Reserves only. In general, if there is not a reasonable expectation that loans or other forms of financing (e.g., farm-outs) can be arranged such that the development will be initiated within a reasonable timeframe, then the project should be classified as Contingent Resources. If financing is reasonably expected but not yet confirmed, the project may be classified as Reserves, but no Proved Reserves may be reported as above. Project is economic if its best estimate. External agencies may modify evaluations for their reporting requirements Which drives? PRMS or the external requirement?

22 Next Steps / Status Review is underway now and it is envisaged that any recommended revision will take ~2 yrs, however this timeframe is very uncertain at this stage. Ideas for improvement are coming in via workshops and conferences. It is the principle of the update that is the key driver and incorporate views of others, not the timing. Please initially make your comments to Don McMillan who will consolidate the results of the survey and workshop and work with Greg Horton to provide feedback to SPE OGRC. As with the Applications Guidelines there will be a public consultation process/period prior to finalising any revision. Questions for now