Attached files
Exhibit
99.2
Southwest
Royalties, Inc.
Estimated
Future
Reserves and Income
Attributable
to Certain
Leasehold
and Royalty Interests
SEC
Parameters
As
of
December
31, 2009
|
\s\
William K. Fry
|
\s\
John E. Hamlin
|
|
|
William
K. Fry, P.E.
|
John
E. Hamlin, P.E.
|
|
|
TBPE
License No. 97134
|
TBPE
License No. 65319
|
|
|
Senior
Petroleum Engineer
|
Managing
Senior Vice President
|
|
RYDER
SCOTT COMPANY, L.P.
TBPE Firm
Registration No. F-1580
[SEAL] [SEAL]
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
TBPE REGISTERED ENGINEERING FIRM
F-1580FAX (713) 651-0849
1100
LOUISIANA SUITE 3800HOUSTON, TEXAS 77002-5218TELEPHONE (713)
651-9191
January 26, 2010
Southwest
Royalties, Inc.
Claydesta
Center
Six Desta
Drive, Suite 3000
Midland,
TX 79705
Gentlemen:
At your
request, we have prepared an estimate of the proved and probable reserves,
future production, and income attributable to certain leasehold and royalty
interests of Southwest Royalties, Inc. (SWR) as of December 31,
2009. The subject properties are located in the states of Alabama,
Arkansas, Kansas, Louisiana, Mississippi, Montana, North Dakota, New Mexico,
Oklahoma and Texas. 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 January 26, 2010, are presented herein.
Based on
information provided by SWR, the total proved reserves summarized in our report
represent approximately 46.2 percent of their proved reserves on a barrel
equivalent basis for their continuing operations, and the total probable
reserves summarized in our report represent 100 percent of their probable
reserves on a barrel equivalent basis for their continuing
operations.
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 below.
SEC
PARAMETERS
Estimated
Net Reserves and Income Data
Certain
Leasehold and Royalty Interests of
Southwest
Royalties, Inc.
|
As
of December 31, 2009
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Proved
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||||||||
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Developed
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Total
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|||||||
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Producing
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Non-Producing
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Undeveloped
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Proved
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|||||
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Net Remaining Reserves
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||||||||
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Oil/Condensate
– Barrels
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6,767,137
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1,157,123
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1,565,134
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9,489,394
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||||
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Plant
Products – Barrels
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168,993
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32,982
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67,726
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269,701
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||||
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Gas
– MMCF
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24,300
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6,175
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4,136
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34,611
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||||
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Income Data
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||||||||
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Future
Gross Revenue
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$447,193,344
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$82,108,891
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$96,608,477
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$625,910,712
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||||
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Deductions
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193,528,031
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36,272,270
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48,813,695
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278,613,996
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||||
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Future
Net Income (FNI)
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$253,665,313
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$45,836,621
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$47,794,782
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$347,296,716
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||||
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Discounted
FNI @ 10%
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$150,866,781
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$26,071,420
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$12,672,907
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$189,611,108
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||||
1200, 530 8TH AVENUE,
S.W.CALGARY, ALBERTA T2P 3S8TEL (403) 262-2799FAX (403) 262-2790
621 17TH STREET, SUITE
1550DENVER, COLORADO
80293-1501TEL (303) 623-9147FAX (303) 623-4258
Southwest
Royalties, Inc.
January
26, 2010
Page
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Total
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Probable
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Undeveloped
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Net Remaining Reserves
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Oil/Condensate
– Barrels
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915,222
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Gas
– MMCF
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5,027
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Income Data
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Future
Gross Revenue
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$62,908,977
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Deductions
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37,536,145
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Future
Net Income (FNI)
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$25,372,832
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Discounted
FNI @ 10%
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$11,970,041
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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.
The
estimates of the reserves, future production, and income attributable to
properties in this report were prepared using the economic software package
AriesTM
System Petroleum Economic Evaluation Software, a copyrighted program of
Halliburton. The program was used solely at the request of
SWR. 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 comprise 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.
Liquid
hydrocarbon reserves account for approximately 81 percent of the total future
gross revenue from proved reserves and gas reserves account for the remaining 19
percent of total future gross revenue from proved reserves. Liquid
hydrocarbon reserves account for approximately 76 percent of the total future
gross revenue from probable reserves and gas reserves account for the remaining
24 percent of total future gross revenue from probable 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.
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Discounted
Future Net Income
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||||||
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As
of December 31, 2009
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||||||
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Discount
Rate
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Total
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Total
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||||
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Percent
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Proved
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Probable
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||||
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6
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$229,156,406
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$15,992,902
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||||
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9
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$197,988,031
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$12,858,153
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||||
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12
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$175,048,656
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$10,385,600
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||||
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15
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$157,378,469
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$ 8,406,071
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||||
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 and probable reserves included herein conform to the definitions as set
forth in the Securities and Exchange Commission’s 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
titled “Petroleum Reserves Definitions.” The developed proved
non-producing reserves included herein consist of the behind pipe
category.
No
attempt was made to quantify or otherwise account for any accumulated gas
production imbalances that may exist. The gas volumes included herein
do not attribute 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. 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.
SWR’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 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 SWR 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
In
general, performance methods or analogy were used to estimate the reserves
included in this report; however, other methods were used in certain cases where
characteristics of the data indicated such other methods were more appropriate
in our opinion. The reserves estimated by the performance methods
utilized extrapolations of various historical data available through September
2009 in those cases where such data were definitive. Reserves were
estimated by analogy in those cases where there were inadequate historical
performance data to establish a definitive trend or where the use of production
performance data as a basis for the reserve estimates was considered to be
inappropriate.
Reserves
attributable to current producing well completions were predominantly estimated
using production decline curve analysis. Reserves assigned to future
completions were predominantly estimated by analogy to reserves recovered from
existing completions. We utilized all methods and procedures that we
deemed necessary to estimate SWR’s proved and probable reserves, and we affirm
that those methods and procedures were appropriate for this
purpose.
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 that 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. SWR 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 SWR 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 SWR.
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 SWR.
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 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
hydrocarbons 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 that were actually used for each property
reflect adjustment from the above stated prices for gravity, quality, heating
value, local conditions, transportation costs, 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.
Costs
Operating
costs for the leases and wells in this report are based on the operating expense
reports of SWR 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 SWR and are based on authorizations for
expenditure for the proposed work or actual costs for similar
projects. SWR’s estimates of zero abandonment costs after salvage
value for onshore properties were used in this report. Ryder Scott
has not performed a detailed study of the abandonment costs or the salvage value
and makes no warranty for SWR’s estimate.
Because
of the direct relationship between volumes of proved and probable undeveloped
reserves and development plans, we include in the proved and probable
undeveloped categories only reserves assigned to undeveloped locations that we
have been assured will definitely be drilled and reserves assigned to the
undeveloped portions of secondary projects which we have been assured will
definitely be developed. SWR 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.
Current
costs used by SWR 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 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 engineer’s license or a registered or
certified professional geoscientist’s 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 SWR. Neither we nor
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 Southwest
Royalties, Inc. 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\ William K. Fry
William K. Fry, P.E.
TBPE License No.
97134 [SEAL]
Senior Petroleum
Engineer
\s\ John E. Hamlin
John E. Hamlin, P.E.
TBPE License No.
65319 [SEAL]
Managing Senior Vice
President
WKF/sm
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
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. John E. Hamlin was the primary technical person responsible
for overseeing the estimate of the reserves, future production, and income
presented herein.
Mr.
Hamlin, an employee of Ryder Scott Company L.P. (Ryder Scott) since 1979, is a
Managing Senior Vice President and also serves as an Engineering Group
Supervisor responsible for coordinating and supervising staff and consulting
engineers of the company in ongoing reservoir evaluation studies
worldwide. Before joining Ryder Scott, Mr. Hamlin served in a number
of engineering positions with Phillips Petroleum Corporation. For
more information regarding Mr. Hamlin’s geographic and job specific experience,
please refer to the Ryder Scott Company website at
http://www.ryderscott.com/Experience/Employees.php.
Mr.
Hamlin earned a Bachelor of Science degree in Petroleum Engineering from the
University of Texas at Austin in 1975 and is a registered Professional Engineer
in the State of Texas. He is also a member of the Society of
Petroleum Engineers.
In
addition to gaining experience and competency through prior work experience, the
Texas Board of Professional Engineers requires a minimum of 15 hours of
continuing education annually, including at least one hour in the area of
professional ethics, which Mr. Hamlin fulfills. As part of his 2009
continuing education hours, Mr. Hamlin attended an internally presented 9 hours of formalized
training as well as a day long 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. Hamlin attended an additional 24 hours of formalized
in-house training as well as an additional 4 hours of formalized external
training during 2009 covering such topics as the SPE/WPC/AAPG/SPEE Petroleum
Resources Management System, reservoir engineering, geoscience and petroleum
economics evaluation methods, procedures and software and ethics for
consultants.
Based on
his educational background, professional training and more than 33 years of
practical experience in the estimation and evaluation of petroleum reserves, Mr.
Hamlin 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
PETROLEUM
RESERVES DEFINITIONS
As
Adapted From:
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.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM
RESERVES DEFINITIONS
Page
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 producible—from a given
date forward, from known reservoirs, and under existing economic conditions,
operating methods, and government regulations—prior 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:
(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.
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RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
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)
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)
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.
RYDER
SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM
RESERVES DEFINITIONS
Page
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.