Attached files
file | filename |
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10-K - FORM 10-K - HARVEST NATURAL RESOURCES, INC. | h70116e10vk.htm |
EX-31.1 - EX-31.1 - HARVEST NATURAL RESOURCES, INC. | h70116exv31w1.htm |
EX-32.1 - EX-32.1 - HARVEST NATURAL RESOURCES, INC. | h70116exv32w1.htm |
EX-31.2 - EX-31.2 - HARVEST NATURAL RESOURCES, INC. | h70116exv31w2.htm |
EX-23.3 - EX-23.3 - HARVEST NATURAL RESOURCES, INC. | h70116exv23w3.htm |
EX-23.1 - EX-23.1 - HARVEST NATURAL RESOURCES, INC. | h70116exv23w1.htm |
EX-99.1 - EX-99.1 - HARVEST NATURAL RESOURCES, INC. | h70116exv99w1.htm |
EX-23.2 - EX-23.2 - HARVEST NATURAL RESOURCES, INC. | h70116exv23w2.htm |
EX-32.2 - EX-32.2 - HARVEST NATURAL RESOURCES, INC. | h70116exv32w2.htm |
EX-21.1 - EX-21.1 - HARVEST NATURAL RESOURCES, INC. | h70116exv21w1.htm |
Exhibit 99.2
FAX (303) 623-4258 | ||||||
621 SEVENTEENTH STREET | SUITE 1550 | DENVER, COLORADO | ||||
80293 TELEPHONE (303) 623-9147 | ||||||
February 26, 2010 |
HNR Finance B.V.
Prins Bernhardplein 200
P.O. Box 990
1000 AZ Amsterdam, Netherlands
Prins Bernhardplein 200
P.O. Box 990
1000 AZ Amsterdam, Netherlands
Attention:
|
Harvest (US) Holdings, Inc. Director A | |
Fortis Intertrust (Netherlands) B.V. Director B |
Gentlemen:
At your request, we have prepared an estimate of the reserves, future production, and income
attributable to HNR Finance B.V.s (HNR) interest in certain properties located in the Greater
Oficina Trend of Eastern Venezuela. These properties have been included in a company called
Petrodelta S.A., in which HNR Finance B.V. has a 40 percent interest, and Corporación Venezolana
del Petroleo S.A. (CVP) has 60 percent interest. The properties include six fields, Uracoa,
Tucupita, Bombal, Temblador, Isleño, and El Salto (Petrodelta fields).
At your request, we have prepared an estimate of the proved, probable and possible reserves,
future production, and income attributable to certain leasehold and royalty interests of HNR
Finance B.V. as of December 31, 2009. The subject properties are located in the state of Monagas,
Venezuela. The reserves and income data were estimated based on the definitions and disclosure
guidelines contained in the United States Securities and Exchange Commission Title 17, Code of
Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009
in the Federal Register (SEC regulations). The results of our third party study, completed on
February 26, 2010, are presented herein. The properties reviewed by Ryder Scott represent 100
percent of the total net proved, probable and possible liquid hydrocarbon reserves and 100 percent
of the total net proved, probable and possible gas reserves of HNR Finance B.V..
The estimated reserves and future net income amounts presented in this report, as of December
31, 2009 are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this
report are based on the average prices during the 12-month period prior to the ending date of the
period covered in this report, determined as unweighted arithmetic averages of the prices in effect
on the first-day-of-the-month for each month within such period, unless prices were defined by
contractual arrangements as required by the SEC regulations. Actual future prices may vary
significantly from the prices required by SEC regulations; therefore, volumes of reserves actually
recovered and the amounts of income actually received may differ significantly from the estimated
quantities presented in this report. The results of this study are summarized on the next page.
1100 LOUISIANA, SUITE 3800 HOUSTON, TEXAS 77002-5218 TEL (713) 651-9191 FAX (713) 651-0849
530 8TH AVENUE, S.W., SUITE 1200 CALGARY, ALBERTA T2P 3S8TEL (403) 262-2799 FAX (403) 262-2790
530 8TH AVENUE, S.W., SUITE 1200 CALGARY, ALBERTA T2P 3S8TEL (403) 262-2799 FAX (403) 262-2790
HNR Finance B.V.
February 26, 2010
Page 2
February 26, 2010
Page 2
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Petrodelta S.A.
As of December 31, 2009
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
Petrodelta S.A.
As of December 31, 2009
Proved | ||||||||||||||||
Developed | Total | |||||||||||||||
Producing | Non-Producing | Undeveloped | Proved | |||||||||||||
Net Remaining Reserves |
||||||||||||||||
Oil/Condensate Barrels |
11,404,822 | 2,836,884 | 33,177,013 | 47,418,720 | ||||||||||||
Gas MMCF |
23,217 | 797 | 38,695 | 62,710 | ||||||||||||
Income Data $M |
||||||||||||||||
Future Gross Revenue |
$ | 665,351 | $ | 162,448 | $ | 1,945,040 | $ | 2,772,840 | ||||||||
Deductions |
143,274 | 39,202 | 730,074 | 912,550 | ||||||||||||
Future Net Income (FNI) |
$ | 522,077 | $ | 123,246 | $ | 1,214,966 | $ | 1,860,289 | ||||||||
Discounted FNI @ 10% |
$ | 322,904 | $ | 66,901 | $ | 624,855 | $ | 1,014,660 |
Total | Total | |||||||
Probable | Possible | |||||||
Net Remaining Reserves |
||||||||
Oil/Condensate Barrels |
43,806,586 | 168,516,762 | ||||||
Gas MMCF |
14,686 | 46,434 | ||||||
Income Data M$ |
||||||||
Future Gross Revenue |
$ | 2,512,145 | $ | 9,648,315 | ||||
Deductions |
919,142 | 3,102,372 | ||||||
Future Net Income (FNI) |
$ | 1,593,003 | $ | 6,545,943 | ||||
Discounted FNI @ 10% |
$ | 698,265 | $ | 2,388,673 |
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are
reported on an as sold basis expressed in millions of cubic feet (MMCF) at the official
temperature and pressure bases of the areas in which the gas reserves are located.
PHDWin Petroleum Economic Evaluation Software (version 2.8 Build 3), a copyrighted program of
TRC Consultants L.C.; the program was used solely at the request of HNR Finance B.V. Ryder Scott
has found this program to be generally acceptable, but notes that certain summaries and
calculations may vary due to rounding and may not exactly match the sum of the properties being
summarized. Furthermore, one line economic summaries may vary slightly from the more detailed cash
flow projections of the same properties, also due to rounding. The rounding differences are not
material.
The future gross revenue is after the deduction of production taxes. The deductions
incorporate the normal direct costs of operating the wells, ad valorem taxes, recompletion costs
and development costs. The future net income is before the deduction of state and federal income
taxes and general administrative overhead, and has not been adjusted for outstanding loans that may
exist nor does it include any adjustment for cash on hand or undistributed income.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 3
February 26, 2010
Page 3
Liquid hydrocarbon reserves account for approximately 97 percent of the total future gross
revenue from proved reserves and gas reserves account for the remaining 3 percent of total future
gross revenue from proved reserves. Liquid hydrocarbon reserves account for approximately 99
percent of the total future gross revenue from probable reserves and gas reserves account for the
remaining 1 percent of total future gross revenue from probable reserves. Liquid hydrocarbon
reserves account for approximately 99 percent of the total future gross revenue from possible
reserves and gas reserves account for the remaining 1 percent of total future gross revenue from
possible reserves.
The discounted future net income shown above was calculated using a discount rate of 10
percent per annum compounded monthly. Future net income was discounted at four other discount
rates, which were also compounded monthly. These results are shown in summary form as follows.
Discounted Future Net Income | ||||||||||||
As of December 31, 2009 | ||||||||||||
Discount Rate | Total | Total | Total | |||||||||
Percent | Proved | Probable | Possible | |||||||||
5 |
$ | 1,340,542 | $ | 1,032,335 | $ | 3,851,928 | ||||||
8 |
$ | 1,128,363 | $ | 812,682 | $ | 2,874,765 | ||||||
12 |
$ | 918,104 | $ | 603,382 | $ | 1,999,587 | ||||||
15 |
$ | 798,559 | $ | 489,450 | $ | 1,551,800 |
The results shown above are presented for your information and should not be construed as
our estimate of fair market value.
Reserves Included in This Report
The proved, probable and possible reserves included herein conform to the definitions as set
forth in the Securities and Exchange Commissions Regulations Part 210.4-10 (a). An abridged
version of the SEC reserves definitions from 210.4-10(a) entitled Petroleum Reserves Definitions
is included as an attachment to this report.
The various reserve status categories are defined in the attachment to this report entitled
Petroleum Reserves Definitions.
No attempt was made to quantify or otherwise account for any accumulated gas production
imbalances that may exist. The gas volumes included herein attributes gas consumed in operations
as reserves.
While it may reasonably be anticipated that the future prices received for the sale of
production and the operating costs and other costs relating to such production may also increase or
decrease from existing levels, such changes were, in accordance with rules adopted by the SEC,
omitted from consideration in making this evaluation.
Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of
geoscience and engineering data, can be estimated with reasonable certainty to be economically
producible from a given date forward. Probable reserves are those additional reserves that are
less certain to be recovered than proved reserves but which, together with proved reserves, are as
likely as not to be recovered. Possible reserves are those additional reserves which are less
certain to be recovered than probable reserves and thus the probability of achieving or exceeding
the proved plus probable plus possible reserves is low. The reserves included herein were
estimated using
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 4
February 26, 2010
Page 4
deterministic methods and presented as incremental quantities. Under the deterministic incremental
approach, discrete quantities of reserves are estimated and assigned separately as proved, probable
or possible based on their individual level of uncertainty.
The reserves and income quantities attributable to the different reserve classifications that
are included herein have not been adjusted to reflect these varying degrees of risk associated with
them and thus are not comparable. Moreover, estimates of reserves may increase or decrease as a
result of future operations, effects of regulation by governmental agencies or geopolitical risks.
As a result, the estimates of oil and gas reserves have an intrinsic uncertainty. The reserves
included in this report are therefore estimates only and should not be construed as being exact
quantities. They may or may not be actually recovered, and if recovered, the revenues therefrom
and the actual costs related thereto could be more or less than the estimated amounts.
The reserves reported herein are limited to the period prior to expiration of current
contracts providing the legal right to produce or a revenue interest in such production unless
evidence indicates that contract renewal is reasonably certain. Furthermore, properties in the
different countries may be subjected to significantly varying contractual fiscal terms that affect
the net revenue to Petrodelta, S.A. for the production of these volumes. The prices and economic
return received for these net volumes can vary significantly based on the terms of these contracts.
Therefore, when applicable, Ryder Scott reviewed the fiscal terms of such contracts and discussed
with HNR Finance B.V. the net economic benefit attributed to such operations for the determination
of the net hydrocarbon volumes and income thereof. Ryder Scott has not conducted an exhaustive
audit or verification of such contractual information. Neither our review of such contractual
information or our acceptance of HNR Finance B.V.s representations regarding such contractual
information should be construed as a legal opinion on this matter.
Ryder Scott did not evaluate country and geopolitical risks in the countries where HNR Finance
B.V. operates or has interests. HNR Finance B.V.s operations may be subject to various levels of
governmental controls and regulations. These controls and regulations may include matters relating
to land tenure, drilling, production practices, environmental protection, marketing and pricing
policies, royalties, various taxes and levies including income tax, and foreign trade and
investment and are subject to change from time to time. Such changes in governmental regulations
and policies may cause volumes of reserves actually recovered and amounts of income actually
received to differ significantly from the estimated quantities.
The estimates of reserves presented herein were based upon a detailed study of the properties
in which Petrodelta, S.A. owns an interest; however, we have not made any field examination of the
properties. No consideration was given in this report to potential environmental liabilities that
may exist nor were any costs included for potential liability to restore and clean up damages, if
any, caused by past operating practices.
Estimates of Reserves
The reserves for the properties included herein were estimated by performance methods or the
volumetric method. In general, reserves attributable to producing wells and/or reservoirs were
estimated by performance methods such as decline curve analysis, material balance and/or reservoir
simulation which utilized extrapolations of historical production and pressure data available
through December 31, 2009 in those cases where such data were considered to be definitive. In
certain cases, producing reserves were estimated by the volumetric method where there were
inadequate historical performance data to establish a definitive trend and where the use of
production performance data as a basis for the reserve estimates was considered to be
inappropriate. Reserves attributable to proved,
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 5
February 26, 2010
Page 5
probable and possible non-producing and undeveloped reserves included herein were estimated by the
volumetric method which utilized all pertinent well and seismic data available through 2009.
To estimate economically recoverable oil and gas reserves and related future net cash flows,
we consider many factors and assumptions including, but not limited to, the use of reservoir
parameters derived from geological, geophysical and engineering data which cannot be measured
directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of
future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved, probable
and possible reserves must be demonstrated to be economically producible based on existing economic
conditions including the prices and costs at which economic producibility from a reservoir is to be
determined as of the effective date of the report. HNR Finance B.V. has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and reports and other
data required for this investigation. In preparing our forecast of future production and income,
we have relied upon data furnished by HNR Finance B.V. with respect to property interests owned,
production and well tests from examined wells, normal direct costs of operating the wells or
leases, other costs such as transportation and/or processing fees, ad valorem and production taxes,
recompletion and development costs, abandonment costs after salvage, product prices based on the
SEC regulations, geological structural and isochore maps, well logs, core analyses, and pressure
measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not
conducted an independent verification of the data supplied by HNR Finance B.V.
Future Production Rates
Our forecasts of future production rates are based on historical performance from wells now on
production. Test data and other related information were used to estimate the anticipated initial
production rates for those wells or locations that are not currently producing. If no production
decline trend has been established, future production rates were held constant, or adjusted for the
effects of curtailment where appropriate, until a decline in ability to produce was anticipated.
An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has
been established, this trend was used as the basis for estimating future production rates. For
reserves not yet on production, sales were estimated to commence at an anticipated date furnished
by HNR Finance B.V.
The future production rates from wells now on production may be more or less than estimated
because of changes in market demand or allowables set by regulatory bodies. Wells or locations
that are not currently producing may start producing earlier or later than anticipated in our
estimates.
Hydrocarbon Prices
As previously stated, the hydrocarbon prices used herein are based on SEC price parameters
using the average prices during the 12-month period prior to the ending date of the period covered
in this report, determined as the unweighted arithmetic averages of the prices in effect on the
first-day-of-the-month for each month within such period, unless prices were defined by contractual
arrangements. For hydrocarbon products sold under contract, the contract prices including fixed
and determinable escalations, exclusive of inflation adjustments, were used until expiration of the
contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic
average as previously described. Product prices which were actually used for each property reflect
adjustment for gravity, quality, local conditions, and/or distance from market.
The effects of derivative instruments designated as price hedges of oil and gas quantities are
not reflected in our individual property evaluations.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 6
February 26, 2010
Page 6
Costs
Operating costs for the leases and wells in this report are based on the operating expense
reports of HNR Finance B.V. and include only those costs directly applicable to the leases or
wells. The operating costs include a portion of general and administrative costs allocated directly
to the leases and wells. When applicable for operated properties, the operating costs include an
appropriate level of corporate general administrative and overhead costs. The operating costs for
non-operated properties include the COPAS overhead costs that are allocated directly to the leases
and wells under terms of operating agreements. No deduction was made for loan repayments, interest
expenses, or exploration and development prepayments that were not charged directly to the leases
or wells.
Development costs were furnished to us by HNR Finance B.V. and are based on authorizations for
expenditure for the proposed work or actual costs for similar projects. The estimated net cost of
abandonment after salvage was included for properties where abandonment costs net of salvage were
significant. The estimates of the net abandonment costs furnished by HNR Finance B.V. were
accepted without independent verification.
Because of the direct relationship between volumes of proved, probable and possible
undeveloped reserves and development plans, we include in the proved, probable and possible
undeveloped category only reserves assigned to undeveloped locations that we have been assured will
definitely be drilled. HNR Finance B.V. has assured us of their intent and ability to proceed with
the development activities included in this report, and that they are not aware of any legal,
regulatory or political obstacles that would significantly alter their plans.
Although some development capital is projected for blowdown recompletions, operations, and
maintenance beyond 2014, these amounts are in accordance with long-term project plans and are
insignificant compared to activities pursued within 5 years of December 31, 2009 (approximately
2%).
Accounting for past bookings under previous SEC rules, a portion of Harvests 164-well proved
undeveloped portfolio may not be drilled until the sixth year after the initial booking, but still
within 5 years of December 31, 2009. Under the new SEC regulations, undeveloped reserves should be
developed within 5 years of the initial booking unless special circumstances exist. Ryder Scott
has discussed these reserves with Harvest and Harvest believes that, in accordance with guidance
provided by the SEC, special circumstances do exist with respect to these reserves and warrant
classification of these reserves as proved undeveloped reserves. Ryder Scott has included these
reserves in this report based on our understanding of these exceptional circumstances.
Current costs used by HNR Finance B.V. were held constant throughout the life of the
properties.
Standards of Independence and Professional Qualification
Ryder Scott is an independent petroleum engineering consulting firm that has been providing
petroleum consulting services throughout the world for over seventy years. Ryder Scott is employee
owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We
have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our
firm and the large number of clients for which we provide services, no single client or job
represents a material portion of our annual revenue. We do not serve as officers or directors of
any publicly traded oil and gas company and are separate and independent from the operating and
investment decision-making process of our clients. This allows us to bring the highest level of
independence and objectivity to each engagement for our services.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 7
February 26, 2010
Page 7
Ryder Scott actively participates in industry related professional societies and organizes an
annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of
our staff have authored or co-authored technical papers on the subject of reserves related topics.
We encourage our staff to maintain and enhance their professional skills by actively participating
in ongoing continuing education.
Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and
geoscientists have received professional accreditation in the form of a registered or certified
professional engineers license or a registered or certified professional geoscientists license,
or the equivalent thereof, from an appropriate governmental authority or a recognized
self-regulating professional organization.
We are independent petroleum engineers with respect to HNR Finance B.V. Neither we nor any of
our employees have any interest in the subject properties, and neither the employment to do this
work nor the compensation is contingent on our estimates of reserves for the properties which were
reviewed.
The professional qualifications of the undersigned, the technical person primarily responsible
for reviewing and approving the reserves information discussed in this report, are included as an
attachment to this letter.
Terms of Usage
This report was prepared for the exclusive use and sole benefit of HNR Finance B.V. Company
and may not be put to other use without our prior written consent for such use. The data and work
papers used in the preparation of this report are available for examination by authorized parties
in our offices. Please contact us if we can be of further service.
Very truly yours, | ||
RYDER SCOTT COMPANY, L.P. | ||
TBPE Firm Registration No. F-1580 | ||
/s/ Scott Wilson | ||
Scott J. Wilson, P.E., MBA | ||
Senior Vice President | ||
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
HNR Finance B.V.
February 26, 2010
Page 9
February 26, 2010
Page 9
Professional Qualifications of Primary Technical Person
The conclusions presented in this report are the result of technical analysis conducted by teams of
geoscientists and engineers from Ryder Scott Company, L.P. Mr. Scott James Wilson was the primary
technical person responsible for the estimate of the reserves, future production, and income
presented herein.
Mr. Wilson, an employee of Ryder Scott Company L.P. (Ryder Scott) since 2000, is a Senior Vice
President responsible for coordinating and supervising staff and consulting engineers of the
company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Wilson
served in a number of engineering positions with Atlantic Richfield Company. For more information
regarding Mr. Wilsons geographic and job specific experience, please refer to the Ryder Scott
Company website at http://www.ryderscott.com/Experience/Employees.php.
Mr. Wilson earned a Bachelor of Science degree in Petroleum Engineering from the Colorado School of
Mines in 1983 and an MBA in Finance from the University of Colorado in 1985, graduating from both
with High Honors. He is a registered Professional Engineer by exam in the States of Alaska,
Colorado, and Wyoming. He is also an active member of the Society of Petroleum Engineers; serving
as co-Chairman of the SPE Reserves and Economics Technology Interest Group, and Gas Technology
Editor for SPEs Journal of Petroleum Technology. He is a member and past chairman of the Denver
section of the Society of Petroleum Evaluation Engineers. Mr. Wilson has published several
technical papers and holds two US patents.
In addition to gaining experience and competency through prior work experience, the Wyoming Board
of Professional Engineers requires a minimum of fifteen hours of continuing education annually,
including at least one hour in the area of professional ethics, which Mr. Wilson fulfills. As part
of his 2009 continuing education hours, Mr. Wilson attended an internally presented sixteen hours
of formalized training as well as a public forum relating to the definitions and disclosure
guidelines contained in the United States Securities and Exchange Commission Title 17, Code of
Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009
in the Federal Register. Mr. Wilson attended an additional seven hours of formalized external
training during 2009 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum Resources Management
System, reservoir engineering and petroleum economics evaluation methods, procedures and software
and ethics for consultants.
Based on his educational background, professional training and more than 25 years of practical
experience in the estimation and evaluation of petroleum reserves, Mr. Wilson has attained the
professional qualifications as a Reserves Estimator and Reserves Auditor set forth in Article III
of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the Society of Petroleum Engineers as of February 19, 2007.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS TBPE FIRM LIC. NO. F-1580
PETROLEUM RESERVES DEFINITIONS
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
PREAMBLE
On January 14, 2009, the United States Securities and Exchange Commission (the Commission)
published the Modernization of Oil and Gas Reporting; Final Rule in the Federal Register of
National Archives and Records Administration (NARA). The Modernization of Oil and Gas Reporting;
Final Rule includes revisions and additions to the definition section in Rule 4-10 of Regulation
S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and
amends and codifies Industry Guide 2 in Regulation S-K. The Modernization of Oil and Gas
Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, shall be
referred to herein collectively as the SEC Regulations. The SEC Regulations take effect with all
filings made with the United States Securities and Exchange Commission as of December 31, 2009, or
after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal
Regulations, Regulation S-X Part 210, Rule 4-10 (a) for the complete definitions, as the following
definitions, descriptions and explanations rely wholly or in part on excerpts from the original
document (direct passages excerpted from the aforementioned SEC document are denoted in italics
herein).
Reserves are those quantities of petroleum which are anticipated to be commercially recovered
from known accumulations from a given date forward under defined conditions. All reserve estimates
involve some degree of uncertainty. The uncertainty depends chiefly on the amount of reliable
geologic and engineering data available at the time of the estimate and the interpretation of these
data. The relative degree of uncertainty may be conveyed by placing reserves into one of two
principal classifications, either proved or unproved. Unproved reserves are less certain to be
recovered than proved reserves and may be further sub-classified as probable and possible reserves
to denote progressively increasing uncertainty in their recoverability. Under the SEC Regulations
as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated
quantities of probable or possible oil and gas reserves in documents publicly filed with the
Commission. The SEC Regulations continue to prohibit disclosure of estimates of oil and gas
resources other than reserves and any estimated values of such resources in any document publicly
filed with the Commission unless such information is required to be disclosed in the document by
foreign or state law as noted in §229.102 (5).
Reserves estimates will generally be revised as additional geologic or engineering data become
available or as economic conditions change.
Reserves may be attributed to either natural energy or improved recovery methods. Improved
recovery methods include all methods for supplementing natural energy or altering natural forces in
the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance,
cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible
displacement fluids. Other improved recovery methods may be developed in the future as petroleum
technology continues to evolve.
PETROLEUM RESERVES DEFINITIONS
Page 2
Page 2
RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (26) defines reserves as
follows:
Reserves. Reserves are estimated remaining quantities of oil and gas and related substances
anticipated to be economically producible, as of a given date, by application of development
projects to known accumulations. In addition, there must exist, or there must be a reasonable
expectation that there will exist, the legal right to produce or a revenue interest in the
production, installed means of delivering oil and gas or related substances to market, and all
permits and financing required to implement the project.
Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated
by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as
economically producible. Reserves should not be assigned to areas that are clearly separated from
a known accumulation by a non-productive reservoir (i.e., absence of reservoir,
structurally low reservoir, or negative test results). Such areas may contain prospective
resources (i.e., potentially recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (22) defines proved oil and gas
reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas,
which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty
to be economically produciblefrom a given date forward, from known reservoirs, and under existing
economic conditions, operating methods, and government regulationsprior to the time at which
contracts providing the right to operate expire, unless evidence indicates that renewal is
reasonably certain, regardless of whether deterministic or probabilistic methods are used for the
estimation. The project to extract the hydrocarbons must have commenced or the operator must be
reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and
(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty,
be judged to be continuous with it and to contain economically producible oil or gas
on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited
by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience,
engineering, or performance data and reliable technology establishes a lower contact with
reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO)
elevation and the potential exists for an associated gas cap, proved oil reserves may be
assigned in the structurally higher portions of the reservoir only if geoscience,
engineering, or performance data and reliable technology establish the higher contact with
reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery
techniques (including, but not limited to, fluid injection) are included in the proved
classification when:
PETROLEUM RESERVES DEFINITIONS
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(A) Successful testing by a pilot project in an area of the reservoir with properties
no more favorable than in the reservoir as a whole, the operation of an installed
program in the reservoir or an analogous reservoir, or other evidence using reliable
technology establishes the reasonable certainty of the engineering analysis on which
the project or program was based; and
(B) The project has been approved for development by all necessary parties and
entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility
from a reservoir is to be determined. The price shall be the average price during the
12-month period prior to the ending date of the period covered by the report, determined as
an unweighted arithmetic average of the first-day-of-the-month price for each month within
such period, unless prices are defined by contractual arrangements, excluding escalations
based upon future conditions.
PROBABLE RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (18) defines probable oil and
gas reserves as follows:
Probable reserves. Probable reserves are those additional reserves that are less certain to be
recovered than proved reserves but which, together with proved reserves, are as likely as not to be
recovered.
(i) When deterministic methods are used, it is as likely as not that actual remaining
quantities recovered will exceed the sum of estimated proved plus probable reserves. When
probabilistic methods are used, there should be at least a 50% probability that the actual
quantities recovered will equal or exceed the proved plus probable reserves estimates.
(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves
where data control or interpretations of available data are less certain, even if the
interpreted reservoir continuity of structure or productivity does not meet the reasonable
certainty criterion.
Probable reserves may be assigned to areas that are structurally higher than the proved area
if these areas are in communication with the proved reservoir.
(iii) Probable reserves estimates also include potential incremental quantities associated
with a greater percentage recovery of the hydrocarbons in place than assumed for proved
reserves.
(iv) See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.
POSSIBLE RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (17) defines possible oil and
gas reserves as follows:
PETROLEUM RESERVES DEFINITIONS
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Possible reserves. Possible reserves are those additional reserves that are less certain to be
recovered than probable reserves.
(i) When deterministic methods are used, the total quantities ultimately recovered from a
project have a low probability of exceeding proved plus probable plus possible reserves.
When probabilistic methods are used, there should be at least a 10% probability that the
total quantities ultimately recovered will equal or exceed the proved plus probable plus
possible reserves estimates.
(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves
where data control and interpretations of available data are progressively less certain.
Frequently, this will be in areas where geoscience and engineering data are unable to define
clearly the area and vertical limits of commercial production from the reservoir by a
defined project.
(iii) Possible reserves also include incremental quantities associated with a greater
percentage recovery of the hydrocarbons in place than the recovery quantities assumed for
probable reserves.
(iv) The proved plus probable and proved plus probable plus possible reserves estimates must
be based on reasonable alternative technical and commercial interpretations within the
reservoir or subject project that are clearly documented, including comparisons to results
in successful similar projects.
(v) Possible reserves may be assigned where geoscience and engineering data identify
directly adjacent portions of a reservoir within the same accumulation that may be separated
from proved areas by faults with displacement less than formation thickness or other
geological discontinuities and that have not been penetrated by a wellbore, and the
registrant believes that such adjacent portions are in communication with the known (proved)
reservoir. Possible reserves may be assigned to areas that are structurally higher or lower
than the proved area if these areas are in communication with the proved reservoir.
(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has
defined a highest known oil (HKO) elevation and the potential exists for an associated gas
cap, proved oil reserves should be assigned in the structurally higher portions of the
reservoir above the HKO only if the higher contact can be established with reasonable
certainty through reliable technology. Portions of the reservoir that do not meet this
reasonable certainty criterion may be assigned as probable and possible oil or gas based on
reservoir fluid properties and pressure gradient interpretations.
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PETROLEUM RESERVES DEFINITIONS
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RESERVES STATUS DEFINITIONS AND GUIDELINES
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
and
PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE),
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE),
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)
Reserves status categories define the development and producing status of wells and
reservoirs.
DEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (6) defines developed oil and
gas reserves as follows:
Developed oil and gas reserves are reserves of any category that can be expected to be
recovered:
(i) Through existing wells with existing equipment and operating methods or in which
the cost of the required equipment is relatively minor compared to the cost of a new
well; and
(ii) Through installed extraction equipment and infrastructure operational at the
time of the reserves estimate if the extraction is by means not involving a well.
Developed Producing (SPE-PRMS Definitions)
While not a requirement for disclosure under the SEC regulations, developed oil and gas
reserves may be further sub-classified according to the guidance contained in the SPE-PRMS 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
Developed Non-Producing Reserves include shut-in and behind-pipe reserves.
PETROLEUM RESERVES DEFINITIONS
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Shut-In
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
Behind-pipe Reserves are expected to be recovered from zones in existing wells which will
require additional completion work or future re-completion 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 (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (31) defines undeveloped oil
and gas reserves as follows:
Undeveloped oil and gas reserves are reserves of any category that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly
offsetting development spacing areas that are reasonably certain of production
when drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a
development plan has been adopted indicating that they are scheduled to be drilled
within five years, unless the specific circumstances, justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved recovery
technique is contemplated, unless such techniques have been proved effective by
actual projects in the same reservoir or an analogous reservoir, as defined in
paragraph (a)(2) of this section, or by other evidence using reliable technology
establishing reasonable certainty.