Comparison of the methods of evaluation applied with respect to petroleum and mineral resources and reserves

Abstract

The evaluation of recoverable resources and commercial reserves is probably the most important process of the publicly trading oil producers and mining companies. This is because the monetized value of reserves and resources is a key determinant with respect to market capitalization. For securing the interest of investors interest global guidelines have been made available to govern the disclosure of details about reserves and resources in both industries. The guidelines — Petroleum Resources Management System (SPE/AAPG/WPC/SPEE 2007); International Reporting Template for the Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves (CRIRSCO 2004) — are underlain by methods for the assessment, classification and categorization of the resource volumes. The methods are similar given that volumes are considered to be estimations of an uncertain nature by both industries. However, the management of the uncertainty (as well as the terminologies applied) are different. Although this study focuses on the analyses of the similarities and differences, and concludes with the collation of certain petroleum and mineral resource and reserve classes or categories, it does not attempt to harmonize – definitely not standardize – the two naturally Concerning resources, the oil industry applies a two-dimensional classification and categorization system. This classification follows the current geological and reservoir engineering knowledge on the given accumulation and is indicated by the maturity of the resource volumes. There are five classes which are taken into account — (i) prognostic, (ii) prospective, (iii) contingent, (iv) undeveloped, and (v) developed. Categorization within each class is defined by the range of the uncertainty. With respect to the latter, the range is given by two extremes and one centrally-positioned value of the actual volumes: the “pessimistic”, the “optimistic” and the “best” estimates, respectively. In the mineral mining industry the re - source classification is uni-dimensiona. This is very similar to the oil industry classification in that it considers the geological knowledge; the respective resource maturity classes are named as (i) inferred, (ii) indicated, and (iii) measured. For minerals, a single volume representing the mathematical mean is given for each class. Reserves are defined in both industries as commercial volumes and the commerciality criteria are almost identical, too. The monetized value of the reserves is given by the discounted cash-flow analyses. However, the discount rates seem to be approached in a different ways. While the mineral mining industry recognizes the uncertainty of the resource estimations with risk premium, in the oil industry the very same discount rate is applied for the economic evaluation of the resources characterized by different ranges of uncertainty. In line with the evaluation of the resources, the reserve classification is two-dimensional in the oil industry: maturity classes are termed as undeveloped and developed, while hree probability categories are given in each class as Proved (1P), Proved and Probable (2P), and Proved, Probable and Possible (3P). The terminologies used for mineral reserve classes are probable and proved. Volumes in each class are numbered by the mathematical means and no further probability- based categorization is applied. In the light of the above considerations it can be concluded that the “best” estimates of the (i) contingent, (ii) undeveloped, and (iii) developed petroleum resources may correspond with the mean volumes of the (i) inferred, (ii) indicated, and (iii) measured mineral resource classes, respectively. Analogically, undeveloped 2P and developed 2P petroleum reserves might be paired – under circumstances detailed in the study – with the respective means of the probable and proved mineral reserves.