Overview of Reserves and Resources Definitions and the Classification Process. Classification of International Projects.

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2 Overview of Reserves and Resources Definitions and the Classification Process Classification of International Projects Offshore Example 2

3 Production Reserves Proved Proved plus Probable Proved plus Probable plus Possible Contingent Resources Unrecoverable Prospective Resources Low Estimate Best Estimate High Estimate Unrecoverable Range of Uncertainty 3 Total Petroleum Initially-In-Place Undiscovered Petroleum Initially-In- Place Discovered Petroleum Initially-In-Place Sub-Commercial Commercial Increasing Chance of Commerciality 1P 2P 3P 1C 2C 3C

4 Reserves are those quantities of petroleum anticipated to be commercially recoverable from known accumulations Reserves must satisfy four criteria: Discovered Recoverable Commercial Remaining Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by development and production status 4

5 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. Common Terms: Conservative 90% probability At least number 5

6 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. 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. 2P - Best Estimate 6

7 Those additional Reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P) Reserves, which is equivalent to the high estimate scenario. In this context, when probabilistic methods are used, there should be at least a 10% probability that the actual quantities recovered will equal or exceed the 3P estimate. 3P - Optimistic Estimate 7

8 Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, and are not considered mature enough for commercial development due to one or more contingencies. Contingent Resources have an associated chance of commerciality Cumulative estimates to reflect the range of uncertainty: 1C (Low Estimate) 2C (Best Estimate) 3C (High Estimate) 8

9 Economic Uneconomic projects with current market conditions Regulatory Considerations Government approvals are uncertain Legal Considerations Stakeholder concerns not resolved Lack of Markets No defined market or infrastructure to transport product Project is in the Early Evaluation Stage Insufficient information to proceed with development 9

10 There is no technology yet developed to produce the accumulation The properties of the reservoir are not yet known so it is not yet understood whether a particular recovery project will be applicable Ownership of the property is not yet established Technical considerations such as reservoir knowledge and productivity relate to uncertainty of recoverability and are not supposed to be contingencies for classification of contingent resources 10

11 Prospective Resources are those 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 commerciality Cumulative estimates to reflect the range of uncertainty P90 (Low Estimate) P50 (Best Estimate) P10 (High Estimate) 11

12 McDaniel uses the following 5 risking parameters: Quantity/volume Quality/richness Maturation Presence Quality Performance Top/base/lateral seal effectiveness Preservation from spillage Source Migration X X Reservoir X Structure & Timing X Seal Timing of closure/ trap & expulsion Effective migration pathway Map reliability & control Presence Data Quality 12

13 Not typically quantified but would depend on the following: Producibility Compartmentalization Continuity Project Finance Development Timing Technology Capability Sub Surface Project X Surface X X Execution Economics Infrastructure FDP NPV Market Opportunities 13

14 Reserves and Resources Classification Process 14

15 Reserves Resources Prospective Contingent Discovery Commerciality Commerciality 15

16 Issues: Acquisition of early data for exploration Data quality Larger and more expensive developments In new or frontier basins limited/none analogous reservoirs Longer lead times from discovery to production Development certainty Economic clarity Progression from Resources to Reserves 16

17 Undiscovered accumulations are classified as prospective resources until a discovery is made. 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. In this context, significant implies that there is evidence of a sufficient quantity of petroleum to justify estimating the in-place volume demonstrated by the well(s) and for evaluating the potential for economic recovery. Prior to this, prospective resources should be assigned along with a chance of discovery This class of resources is usually assigned in the early days of data acquisition 17

18 Main criteria Discovery has been made! This is the class that resources would typically be booked during the later stages of data acquisition and during the appraisal stage prior to determining commerciality of a defined project 18

19 Must satisfy four main criteria: Must be discovered, recoverable, commercial and must be remaining (as of the effective date) To be classified as reserves, the project must be sufficiently defined to establish its commercial viability There must be reasonable expectation that all required internal and external approvals will be forthcoming Evidence of firm intention to proceed with development within a reasonable time frame Must be high confidence in the commercial producibility of the reservoir as supported by actual production or formation tests 19

20 A project may be considered commercially producible, and thus reserves, if the entity claiming commerciality has demonstrated firm intention to proceed with development based upon all of the following: Evidence to support a reasonable timetable for development A reasonable assessment of the future economics meeting defined investment and operating criteria Reasonable expectation of a market for the sales Evidence that the necessary facilities are available or can be made available Evidence that the legal, contractual, environmental and other social and economic concerns will allow for the implementation of the project 20

21 Prospective Resources Contingent Resources 2P Reserves 1P Reserves 21

22 3 Resource Categories Prospective Resources Undiscovered Contingent Resources Discovered but NOT Commercial Reserves Discovered AND Commercial International projects can have a large range of uncertainty in the reserves/resources estimates. Each international project is unique and requires its own assessment to determine the appropriate classification and categorization. 22

23 The opinions expressed within this presentation are those of the authors/presenters. No representation or warrant, express or implied, is made by McDaniel as to the certainty or completeness of the information contained in this presentation, and nothing contained in this presentation is, or shall be relied upon, as a promise or representation by McDaniel This presentation may not be reproduced, in whole or in part. The disclosure of any of the data contained herein or supplied in connection herewith or the use thereof for any other purpose, except with the written consent of McDaniel, is strictly prohibited 23