CANADIAN

OIL AND GAS

EVALUATION HANDBOOK

Consolidated Third Edition – (Online)

August 2018

Reserves Definitions

and

Evaluation Practices and Procedures

Prepared by

Society of Petroleum Evaluation Engineers (Calgary Chapter)

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Canadian Oil and Gas Evaluation Handbook – Consolidated 3rd Edition – (Online) i | P a g e

2018 by the Society of Petroleum Evaluation Engineers (SPEE) (Calgary Chapter).

All rights reserved. No part of this Handbook may be reproduced or transmitted in any form

or by any means, electronic or mechanical, including photocopying, recording, or by any

information storage and retrieval system, without permission in writing from SPEE (Calgary

Chapter).

Third edition published August 2018.

Library and Archives Canada Cataloguing in Publication

Canadian oil and gas evaluation handbook / prepared by Society of Petroleum

Evaluation Engineers (Calgary Chapter) — 3rd ed.

Includes bibliographical references and index.

Contents: v. 1. Reserves definitions and evaluation practices and procedures.

ISBN 978-0-9730695-3-2

1. Petroleum Reserves—Valuation—Standards—Canada. 2. Natural gas Reserves—

Valuation—Standards—Canada. 3. Petroleum Reserves—Valuation—Canada—Handbooks,

manuals, etc. 4. Natural gas Reserves—Valuation—Canada—Handbooks, manuals, etc.

I. Society of Petroleum Evaluation Engineers. Calgary Chapter

Editing and layout by:

Contact: Society of Petroleum Evaluation Engineers (Calgary Chapter),

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Society of Petroleum Evaluation Engineers (Calgary Chapter) ii | P a g e

DISCLAIMER

The Canadian Oil and Gas Evaluation Handbook, Consolidated 3rd Edition – (Online) (“Document”) was

prepared by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the contributing authors

(“Co-authors”). The Co-authors have made every effort to ensure the accuracy and reliability of the

information and data contained in the Document. However, the Co-authors make no representation,

warranty, or guarantee as to the validity, reliability, or acceptability of the contents of the Document, and

disclaim any responsibility or liability for any loss or damage arising from the use of the Document for any

purpose, including without limitation any reports or filings, Reserves evaluation results, conclusions, or

recommendations, or any decisions made because of the use of the Document.

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1 INTRODUCTION AND DEFINITIONS ......................................................................................................................................................... 1

INTRODUCTION ....................................................................................................................................................................................... 2

ABOUT THIS HANDBOOK .................................................................................................................................................................. 2

HISTORY ................................................................................................................................................................................................ 2

CURRENT UPDATE .............................................................................................................................................................................. 2

OIL AND GAS EVALUATIONS ........................................................................................................................................................... 3

PRODUCT AND RESOURCE TYPES ....................................................................................................................................................... 4

PRODUCT TYPES ................................................................................................................................................................................. 6

RESOURCE TYPES ............................................................................................................................................................................... 6

NON-PETROLEUM BY-PRODUCTS ................................................................................................................................................... 9

RESOURCE CLASSIFICATION AND CATEGORIZATION ................................................................................................................. 10

DEVELOPMENT OF RESOURCE DEFINITIONS ............................................................................................................................. 10

TERMINOLOGY: RESOURCES AND RESERVES ........................................................................................................................... 10

PROJECTS AND SCENARIOS ............................................................................................................................................................ 11

LEVELS OF EVALUATION AND REPORTING ............................................................................................................................... 11

THE PETROLEUM RESOURCE MANAGEMENT SYSTEM AND RESOURCE DEFINITIONS ................................................... 12

PROJECT MATURITY SUB-CLASSES .............................................................................................................................................. 14

CLASSIFICATION OF RECOVERABLE RESOURCES .................................................................................................................... 15

DISCOVERY STATUS .................................................................................................................................................................... 16

COMMERCIAL STATUS ................................................................................................................................................................ 16

COMMERCIAL RISK ...................................................................................................................................................................... 16

ECONOMIC STATUS ..................................................................................................................................................................... 17

UNCERTAINTY CATEGORIES ..................................................................................................................................................... 17

DEFINITIONS OF RESERVES ............................................................................................................................................................ 18

RESERVES CATEGORIES ............................................................................................................................................................. 18

1.3.8.1.1 PROVED RESERVES ................................................................................................................................................................. 18

1.3.8.1.2 PROBABLE RESERVES ............................................................................................................................................................. 18

1.3.8.1.3 POSSIBLE RESERVES ............................................................................................................................................................... 19

DEVELOPMENT AND PRODUCTION STATUS .......................................................................................................................... 19

1.3.8.2.1 DEVELOPED RESERVES .......................................................................................................................................................... 19

1.3.8.2.2 UNDEVELOPED RESERVES .................................................................................................................................................... 19

LEVELS OF CERTAINTY FOR REPORTED RESERVES ............................................................................................................ 20

GUIDELINES ............................................................................................................................................................................................ 20

THE RESOURCE ................................................................................................................................................................................. 20

ACCUMULATION .......................................................................................................................................................................... 21

RESERVOIR .................................................................................................................................................................................... 21

UNDISCOVERED AND DISCOVERED RESOURCES ..................................................................................................................... 21

DEVELOPMENT TIMING .................................................................................................................................................................. 21

OWNERSHIP AND REPORTING OF RESOURCES .......................................................................................................................... 21

ECONOMIC INTEREST AND RISK .............................................................................................................................................. 22

RESOURCE INTERESTS AND REPORTING................................................................................................................................ 22

1.4.4.2.1 OWNERSHIP INTEREST IN THE ASSET ................................................................................................................................. 22

1.4.4.2.2 CONTRACTUAL INTEREST IN THE ASSET .......................................................................................................................... 22

1.4.4.2.3 OTHER TYPES OF INTEREST .................................................................................................................................................. 23

AVAILABILITY OF CAPITAL ........................................................................................................................................................... 24

RECOVERY TECHNOLOGY .............................................................................................................................................................. 24

RECOVERY TECHNOLOGY STATUS ......................................................................................................................................... 25

1.4.6.1.1 ESTABLISHED TECHNOLOGY ................................................................................................................................................ 27

1.4.6.1.2 TECHNOLOGY UNDER DEVELOPMENT............................................................................................................................... 27

1.4.6.1.3 EXPERIMENTAL TECHNOLOGY ............................................................................................................................................ 28

SELECTION OF A RECOVERY TECHNOLOGY ......................................................................................................................... 29

RESOURCE CLASSES ........................................................................................................................................................................ 30

PETROLEUM INITIALLY-IN-PLACE ........................................................................................................................................... 31

1.4.7.1.1 ESTIMATION OF PIIP ................................................................................................................................................................ 31

1.4.7.1.1.1 UNDISCOVERED PETROLEUM INITIALLY-IN-PLACE ................................................................................................... 32

1.4.7.1.2 DISCOVERED PETROLEUM INITIALLY-IN-PLACE ............................................................................................................. 32

1.4.7.1.2.1 DISCOVERY ........................................................................................................................................................................... 32

1.4.7.1.2.2 KNOWN ACCUMULATION.................................................................................................................................................. 33

1.4.7.1.2.3 ESTIMATION OF DISCOVERED PETROLEUM INITIALLY-IN-PLACE ......................................................................... 34

1.4.7.1.3 UNRECOVERABLE PETROLEUM INITIALLY-IN-PLACE ................................................................................................... 35

RECOVERABLE RESOURCES ...................................................................................................................................................... 36

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1.4.7.2.1 RESERVES .................................................................................................................................................................................. 36

1.4.7.2.1.1 DRILLING REQUIREMENTS ................................................................................................................................................ 36

1.4.7.2.1.2 TESTING REQUIREMENTS .................................................................................................................................................. 37

1.4.7.2.1.3 ECONOMIC VIABILITY ........................................................................................................................................................ 38

1.4.7.2.1.4 REGULATORY REQUIREMENTS........................................................................................................................................ 38

1.4.7.2.1.5 SOCIAL AND ENVIRONMENTAL ISSUES ......................................................................................................................... 39

1.4.7.2.1.6 POLITICAL CONTINGENCY ................................................................................................................................................ 40

1.4.7.2.1.7 INFRASTRUCTURE AND MARKETS ................................................................................................................................. 40

1.4.7.2.1.8 TIMING OF PRODUCTION AND DEVELOPMENT............................................................................................................ 41

1.4.7.2.2 CONTINGENT RESOURCES ..................................................................................................................................................... 43

1.4.7.2.2.1 CONTINGENCIES .................................................................................................................................................................. 43

1.4.7.2.2.2 TECHNICAL CONTINGENCIES ........................................................................................................................................... 44

1.4.7.2.2.3 NON-TECHNICAL CONTINGENCIES ................................................................................................................................. 45

1.4.7.2.2.4 ESTIMATION OF CONTINGENT RESOURCES ................................................................................................................. 48

1.4.7.2.2.5 TIME AND ACTIVITY LEVELS ........................................................................................................................................... 49

1.4.7.2.2.6 RECLASSIFICATION OF CONTINGENT RESOURCES TO RESERVES .......................................................................... 49

1.4.7.2.2.7 ECONOMIC AND SUB-ECONOMIC CONTINGENT RESOURCES .................................................................................. 51

1.4.7.2.2.8 REPORTING CONTINGENT RESOURCES ......................................................................................................................... 52

1.4.7.2.2.9 PROJECT MATURITY SUB-CLASSES FOR CONTINGENT RESOURCES ...................................................................... 52

1.4.7.2.2.9.1 DEVELOPMENT PENDING 53

1.4.7.2.2.9.2 DEVELOPMENT ON HOLD 54

1.4.7.2.2.9.3 DEVELOPMENT NOT VIABLE 56

1.4.7.2.2.9.4 DEVELOPMENT UNCLARIFIED 56

1.4.7.2.3 PROSPECTIVE RESOURCES .................................................................................................................................................... 57

1.4.7.2.3.1 ESTIMATION OF PROSPECTIVE RESOURCES ................................................................................................................. 58

1.4.7.2.3.2 PROJECT MATURITY SUB-CLASSES FOR PROSPECTIVE RESOURCES ..................................................................... 58

1.4.7.2.3.3 RISKING OF PROSPECTIVE RESOURCES ......................................................................................................................... 58

PROJECTS ................................................................................................................................................................................................ 59

TYPES OF PROJECT ........................................................................................................................................................................... 60

IN-PLACE RESOURCE ASSESSMENT ......................................................................................................................................... 61

RECOVERABLE RESOURCE ASSESSMENT .............................................................................................................................. 61

RECOVERY PROJECT SCENARIOS ................................................................................................................................................. 61

PROJECT DESCRIPTION LEVELS .................................................................................................................................................... 62

LEVEL I EVALUATION (EARLY STAGE) ................................................................................................................................... 62

LEVEL II EVALUATION (INTERMEDIATE STAGE) ................................................................................................................. 63

LEVEL III EVALUATION (ADVANCED STAGE) ....................................................................................................................... 64

PROJECT EVALUATION LEVEL AND CLASSIFICATION ....................................................................................................... 64

RISK AND UNCERTAINTY IN RESOURCE EVALUATION AND CLASSIFICATION .................................................................... 65

BASIC CONCEPTS .............................................................................................................................................................................. 65

DATA ............................................................................................................................................................................................... 65

MEASURES: PROBABILITY, UNCERTAINTY, RISK................................................................................................................. 66

DISTRIBUTION CURVES .............................................................................................................................................................. 67

1.6.1.3.1 MEASURES OF CENTRAL TENDENCY .................................................................................................................................. 68

1.6.1.3.2 MEASURES OF DISPERSION ................................................................................................................................................... 68

ERROR AND UNCERTAINTY IN RESOURCE ESTIMATES ...................................................................................................... 70

1.6.1.4.1 TYPES OF ERROR AND UNCERTAINTY ............................................................................................................................... 70

1.6.1.4.2 SOURCES OF UNCERTAINTY IN THE EVALUATION OF RESERVES............................................................................... 71

1.6.1.4.3 UNCERTAINTY IN INITIAL OR REMAINING RESERVES ................................................................................................... 72

EXPECTED VALUE ........................................................................................................................................................................ 73

DECISION TREES ........................................................................................................................................................................... 74

SINGLE RISK APPLICATION ........................................................................................................................................................ 75

OTHER APPROXIMATIONS OF THE MEAN .............................................................................................................................. 75

TERMINOLOGY ............................................................................................................................................................................. 75

DETERMINISTIC AND PROBABILISTIC METHODS ................................................................................................................ 76

1.6.1.10.1 DETERMINISTIC METHODS .................................................................................................................................................... 76

1.6.1.10.2 PROBABILISTIC METHODS ..................................................................................................................................................... 76

1.6.1.10.3 EQUIVALENCE OF DETERMINISTIC AND PROBABILISTIC METHODS ......................................................................... 78

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2 ESTIMATION OF RESERVES AND RESOURCES .................................................................................................................................... 79

INTRODUCTION ..................................................................................................................................................................................... 80

INTEGRATION OF RESERVES ESTIMATION METHODS............................................................................................................. 80

USE OF ANALOGY IN RESERVES ESTIMATION ............................................................................................................................... 81

ANALOGY IDENTIFICATION ........................................................................................................................................................... 82

RESERVOIR ANALOGUE .............................................................................................................................................................. 83

RECOVERY PROCESS ANALOGUE ............................................................................................................................................ 83

DATA ........................................................................................................................................................................................................ 83

DATA ACQUISITION ......................................................................................................................................................................... 84

GEOPHYSICAL DATA ....................................................................................................................................................................... 86

MICROSEISMIC DATA .................................................................................................................................................................. 87

GEOLOGICAL DATA ......................................................................................................................................................................... 87

CORE DATA AND ROCK SAMPLES ............................................................................................................................................ 88

WIRELINE LOGGING DATA ............................................................................................................................................................. 88

RESERVOIR ENGINEERING DATA ................................................................................................................................................. 88

FLUID ANALYSIS .......................................................................................................................................................................... 88

2.3.5.1.1 BLACK OILS ............................................................................................................................................................................... 89

2.3.5.1.2 VOLATILE OILS ......................................................................................................................................................................... 90

2.3.5.1.3 CONDENSATE (RETROGRADE) GAS ..................................................................................................................................... 90

2.3.5.1.4 WET GAS (RICH GAS) ............................................................................................................................................................... 91

2.3.5.1.5 DRY GAS ..................................................................................................................................................................................... 92

WELL TEST ANALYSIS ................................................................................................................................................................. 93

EXTENDED FLOW TESTS ............................................................................................................................................................. 94

PRODUCTION DATA ..................................................................................................................................................................... 94

COMPLETION DATA ..................................................................................................................................................................... 94

PRODUCTION LOGS ...................................................................................................................................................................... 95

SECONDARY RECOVERY DATA ................................................................................................................................................ 95

2.3.5.7.1 DETERMINATION OF MISCIBILITY CONDITION: SLIM TUBE TEST ............................................................................... 96

2.3.5.7.2 IMMISCIBLE TECHNOLOGY TESTING .................................................................................................................................. 97

2.3.5.7.3 SWEEP EFFICIENCY TECHNOLOGY TESTING .................................................................................................................... 97

2.3.5.7.4 FLUID COMPATIBILITY TEST ................................................................................................................................................ 97

PRESENCE OF HYDROCARBONS ........................................................................................................................................................ 98

VOLUMETRIC METHODS ..................................................................................................................................................................... 99

POOL AREA/DRAINAGE AREA/WELL SPACING UNIT ............................................................................................................. 100

NET PAY ............................................................................................................................................................................................ 102

POROSITY ......................................................................................................................................................................................... 103

HYDROCARBON SATURATION .................................................................................................................................................... 104

RESERVOIR PRESSURE .................................................................................................................................................................. 104

RESERVOIR TEMPERATURE ......................................................................................................................................................... 104

FORMATION VOLUME FACTOR - GAS ........................................................................................................................................ 104

GAS COMPRESSIBILITY FACTOR ............................................................................................................................................ 105

FORMATION VOLUME FACTOR – OIL ......................................................................................................................................... 105

CORRELATIONS FOR CALCULATING FVF ............................................................................................................................. 106

RECOVERY FACTOR ....................................................................................................................................................................... 106

PRODUCTION ANALYSIS METHODS ............................................................................................................................................... 107

DECLINE ANALYSIS ....................................................................................................................................................................... 108

CONVENTIONAL DECLINE CURVE ANALYSIS ..................................................................................................................... 108

HORIZONTAL MULTIPLE-STAGE FRACTURE DECLINE CURVE ANALYSIS ................................................................... 110

2.6.1.2.1 MODIFIED HYPERBOLIC DECLINE ..................................................................................................................................... 111

2.6.1.2.1.1 MHD EXAMPLE #1 – HMSF CARDIUM OIL WELL ........................................................................................................ 113

2.6.1.2.1.2 MHD EXAMPLE #2 – HMSF DUVERNAY GAS WELL ................................................................................................... 114

2.6.1.2.2 ALTERNATIVE DECLINE METHODS ................................................................................................................................... 115

2.6.1.2.2.1 STRETCHED EXPONENTIAL ............................................................................................................................................ 115

2.6.1.2.2.2 DUONG ................................................................................................................................................................................. 116

2.6.1.2.2.3 HYBRID DUONG-MHD METHOD ..................................................................................................................................... 118

RECOMMENDED APPLICATION OF DECLINE TECHNIQUES ............................................................................................. 119

2.6.1.3.1 OVERALL LIMITATIONS OF METHODS ............................................................................................................................. 120

FACTORS AFFECTING DECLINE BEHAVIOR ......................................................................................................................... 120

2.6.1.4.1 ROCK AND FLUID PROPERTIES ........................................................................................................................................... 121

2.6.1.4.2 RESERVOIR GEOMETRY AND DRIVE MECHANISM ........................................................................................................ 122

2.6.1.4.3 WELLBORE, COMPLETION TECHNIQUE, AND OPERATING PRACTICES .................................................................... 123

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GUIDELINES FOR INDIVIDUAL WELL DECLINE ANALYSIS .............................................................................................. 124

GUIDELINES FOR GROUP DECLINE ANALYSIS .................................................................................................................... 125

GUIDELINES FOR RESERVES CLASSIFICATION FROM DECLINE ANALYSIS ..................................................................... 126

EMPIRICAL TYPE WELL ..................................................................................................................................................................... 127

DATA NORMALIZATION ................................................................................................................................................................ 127

WELLS WITH SUSPENDED MONTHS IN DATA SET .............................................................................................................. 127

INCLUDING SHUT-IN WELLS AND “FAILURES” ................................................................................................................... 127

SAMPLE SIZE CUT-OFF (SURVIVOR BIAS) ............................................................................................................................. 128

CALENDAR DAY VERSES PRODUCING DAY RATES ........................................................................................................... 129

NORMALIZE TO PEAK RATE VERSUS MONTH 0 .................................................................................................................. 130

HISTORY VERSES HISTORY + FORECAST ............................................................................................................................. 130

2.7.1.6.1 FORECASTING THE AVERAGE ............................................................................................................................................ 130

2.7.1.6.2 AVERAGING THE FORECASTS ............................................................................................................................................. 131

NORMALIZING AND SCALING FOR KEY ATTRIBUTES ........................................................................................................... 132

NORMALIZING TO WELL LENGTH .......................................................................................................................................... 134

NORMALIZING TO NUMBER OF STAGES ............................................................................................................................... 134

NORMALIZING TO PROPPANT LOADING .............................................................................................................................. 135

PROBIT DISTRIBUTIONS ................................................................................................................................................................ 136

CORRELATION AND CROSS PLOTS ............................................................................................................................................. 137

CHOOSING LOW, BEST AND HIGH TYPE WELLS ...................................................................................................................... 140

CONSIDERATIONS WHEN ASSIGNING TYPE WELLS ............................................................................................................... 142

DIMENSIONLESS TYPE CURVE ANALYSIS AND FLOWING MATERIAL BALANCE METHODS ........................................... 143

FETKOVICH (1980) ........................................................................................................................................................................... 143

BLASINGAME (1993) ....................................................................................................................................................................... 143

AGARWAL AND GARDNER (1998) ................................................................................................................................................ 144

NORMALIZED PRESSURE INTEGRAL (1989) .............................................................................................................................. 144

ADVANTAGES ............................................................................................................................................................................. 144

WATTENBARGER (1998) ................................................................................................................................................................. 145

MATERIAL BALANCE METHODS AND RESERVOIR SIMULATION ............................................................................................ 145

RESERVOIR DRIVE MECHANISMS ............................................................................................................................................... 146

CONSIDERATION OF RESERVOIR PROPERTIES FOR GAS RESERVOIRS.............................................................................. 146

AQUIFERS ..................................................................................................................................................................................... 146

RESERVOIR PERMEABILITY ..................................................................................................................................................... 147

MULTI-WELL RESERVOIRS ....................................................................................................................................................... 147

MULTI-LAYER RESERVOIRS .................................................................................................................................................... 147

NATURALLY FRACTURED RESERVOIRS ............................................................................................................................... 148

CONSIDERATION OF FLUID PROPERTIES .................................................................................................................................. 148

WET GAS RESERVOIRS .............................................................................................................................................................. 148

RETROGRADE CONDENSATE RESERVOIRS .......................................................................................................................... 148

CONSIDERATION OF QUALITY OF PRESSURE DATA .............................................................................................................. 148

TYPES OF PRESSURE MEASUREMENTS ................................................................................................................................. 148

NUMBER OF PRESSURE MEASUREMENTS ............................................................................................................................ 148

CORRELATION OF PRESSURE DATA POINTS........................................................................................................................ 149

HIGH-PERMEABILITY RESERVOIRS ....................................................................................................................................... 149

LOW-PERMEABILITY RESERVOIRS ........................................................................................................................................ 149

CONSIDERATION OF DEGREE OF PRESSURE DEPLETION ..................................................................................................... 149

CONSIDERATIONS IN THE USE OF MATERIAL BALANCE METHODS AND OR RESERVOIR SIMULTION FOR OIL

RESERVOIRS ..................................................................................................................................................................................... 150

SIMULATION OF UNCONVENTIONAL RESERVOIRS ................................................................................................................ 151

SIMULATION OF HYDRAULIC FRACTURES IN UNCONVENTIONAL RESERVOIRS ...................................................... 152

UNDEVELOPED RESERVES RELATED TO FUTURE DRILLING ................................................................................................... 152

ADDITIONAL RESERVES RELATED TO FUTURE DRILLING ................................................................................................... 153

DRILLING SPACING UNIT (DSU) .............................................................................................................................................. 153

INFILL WELLS .............................................................................................................................................................................. 153

DELINEATION OR STEP-OUT WELLS ...................................................................................................................................... 153

INFILL ANALYSIS ............................................................................................................................................................................ 154

UNDEVELOPED RESERVES FOR TIGHTER SPACING IN UNCONVENTIONAL RESERVOIRS ....................................... 155

ADJUSTING FOR PRESSURE DEPLETION ............................................................................................................................... 155

DELINEATION WELL ANALYSIS .................................................................................................................................................. 156

EXTRAPOLATION FROM A CONTROL POINT ........................................................................................................................ 156

CLASSIFICATION OF UNDEVELOPED RESERVES .................................................................................................................... 156

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DESCRIPTIVE EXAMPLE ............................................................................................................................................................ 158

QUALIFIERS TO CATEGORIZATION OF RESERVES.................................................................................................................. 159

ADJUSTMENTS FOR RESERVOIR QUALITY ............................................................................................................................... 159

DRILLING STATISTICS ................................................................................................................................................................... 160

LIKELIHOOD OF DRILLING ........................................................................................................................................................... 160

TIME CONSTRAINTS ....................................................................................................................................................................... 161

EXAMPLES FOR UNDEVELOPED RESERVES ............................................................................................................................. 162

EXAMPLES OF FUTURE DRILLING .......................................................................................................................................... 162

2.10.10.1.1 CASE A ...................................................................................................................................................................................... 162

2.10.10.1.2 CASE B ...................................................................................................................................................................................... 167

2.10.10.1.3 CASE C ...................................................................................................................................................................................... 168

2.10.10.1.4 CASE D ...................................................................................................................................................................................... 169

2.10.10.1.5 CASE E ...................................................................................................................................................................................... 170

2.10.10.1.6 CASE F ....................................................................................................................................................................................... 171

UNDEVELOPED RESERVES RELATED TO PLANNED ENHANCED RECOVERY PROJECTS ................................................... 174

PROVED CRITERIA (1P) .................................................................................................................................................................. 174

PROBABLE CRITERIA ..................................................................................................................................................................... 176

POSSIBLE CRITERIA ....................................................................................................................................................................... 177

USE OF ANALOGS AND PILOT PROJECTS .................................................................................................................................. 177

EOR EXAMPLES ............................................................................................................................................................................... 179

CASE G .......................................................................................................................................................................................... 179

CASE H .......................................................................................................................................................................................... 180

CASE I ............................................................................................................................................................................................ 181

CLASSIFICATION OF INJECTED HYDROCARBONS .................................................................................................................. 182

SAMPLE

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3 ECONOMIC EVALUATION OF RESERVES AND RESOURCES .......................................................................................................... 183

INTRODUCTION ................................................................................................................................................................................... 184

OWNERSHIP AND THE REPORTING OF RESERVES AND RESOURCES ..................................................................................... 184

OWNERSHIP OF RESERVES AND RESOURCES .......................................................................................................................... 185

WORKING INTERESTS................................................................................................................................................................ 186

ROYALTY INTERESTS ................................................................................................................................................................ 186

3.2.1.2.1 LESSOR ROYALTIES .............................................................................................................................................................. 186

3.2.1.2.1.1 FREEHOLD ROYALTIES .................................................................................................................................................... 187

3.2.1.2.1.2 FIRST NATION LANDS ....................................................................................................................................................... 187

3.2.1.2.1.3 CROWN ROYALTIES .......................................................................................................................................................... 187

3.2.1.2.2 OVERRIDING ROYALTIES ..................................................................................................................................................... 188

3.2.1.2.3 ROYALTIES AND GAS PROCESSING ALLOWANCE ......................................................................................................... 188

3.2.1.2.4 NET PROFITS INTERESTS ...................................................................................................................................................... 188

INTERNATIONAL FISCAL REGIMES ............................................................................................................................................ 188

ROYALTY/TAX ............................................................................................................................................................................ 188

CANADIAN INCOME TAXES .............................................................................................................................................................. 189

GENERAL CALCULATION PROCEDURES ................................................................................................................................... 189

MARKETABLE VOLUMES .................................................................................................................................................................. 189

LIGHT, MEDIUM AND HEAVY CRUDE OIL ................................................................................................................................. 190

BITUMEN PRODUCTS ..................................................................................................................................................................... 191

MINED OIL SANDS ...................................................................................................................................................................... 191

SYNTHETIC CRUDE OIL ............................................................................................................................................................. 191

TRANSFER PRICING ........................................................................................................................................................................ 192

BLENDING RATIOS AND NETBACK DETERMINATION ........................................................................................................... 193

EXAMPLE NETBACK CALCULATION ..................................................................................................................................... 194

BITUMEN ...................................................................................................................................................................................... 194

BITUMEN DILUENTS/BLENDS .................................................................................................................................................. 194

PRODUCT PRICING FOR DILUENT ............................................................................................................................................... 195

NATURAL GAS ................................................................................................................................................................................. 195

BY-PRODUCT VOLUMES ................................................................................................................................................................ 196

SOLUTION GAS ............................................................................................................................................................................ 196

NATURAL GAS LIQUIDS ............................................................................................................................................................ 196

SULPHUR ...................................................................................................................................................................................... 196

CARBON DIOXIDE (CO2) ................................................................................................................................................................. 196

OTHER PRODUCTS .......................................................................................................................................................................... 197

PRODUCT PRICES ................................................................................................................................................................................ 197

OIL PRICES ........................................................................................................................................................................................ 198

GAS PRICES ...................................................................................................................................................................................... 198

EUROPE - NATIONAL BALANCING POINT (NBP) .................................................................................................................. 199

NATURAL GAS LIQUIDS (NGL) PRICES ...................................................................................................................................... 199

ETHANE (C2) PRICING ..................................................................................................................................................................... 199

PROPANE (C3) PRICING ................................................................................................................................................................... 200

BUTANES (C4) AND PENTANES PLUS (C5+) PRICING ................................................................................................................ 200

SULPHUR PRICING .......................................................................................................................................................................... 200

THE DETERMINATION OF PRICE ADJUSTMENTS ..................................................................................................................... 200

FORECAST PRICES AND COSTS .................................................................................................................................................... 201

CONSTANT PRICES AND COSTS ................................................................................................................................................... 202

NATIONAL INSTRUMENT 51-101 – (NI51-101) STANDARDS OF DISCLOSURE FOR OIL AND GAS ACTIVITIES ....... 202

U.S. SECURITIES EXCHANGE COMMISSION (SEC) ............................................................................................................... 203

INCORPORATING THE VALUE OF A FINANCIAL HEDGE IN AN EVALUATION ............................................................. 203

FINANCIAL EVALUATION ................................................................................................................................................................. 203

CAPITAL AND OPERATING COSTS .............................................................................................................................................. 203

CAPITAL COST ESTIMATES ...................................................................................................................................................... 204

OPERATING COST ESTIMATES ................................................................................................................................................ 204

MAINTENANCE COSTS .............................................................................................................................................................. 206

COSTS ASSOCIATED WITH ACTIVE AND INACTIVE ASSETS ................................................................................................ 206

THIRD PARTY PROCESSING AND OPERATING INCOME ......................................................................................................... 207

ABANDONMENT, DECOMMISSIONING AND RECLAMATION COSTS .................................................................................. 207

ADR COSTS ON EXISTING DEVELOPMENT ........................................................................................................................... 208

ADR COSTS ON FUTURE DEVELOPMENT .............................................................................................................................. 208

SALVAGE INCOME ..................................................................................................................................................................... 208

SAMPLE

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GENERAL AND ADMINISTRATIVE COSTS ................................................................................................................................. 208

FORECASTING ESCALATION RATES........................................................................................................................................... 209

CASH FLOW ANALYSIS ...................................................................................................................................................................... 209

CASH FLOW FORECAST PREPARATION ..................................................................................................................................... 209

ECONOMIC LIMITS .......................................................................................................................................................................... 215

AVAILABILITY OF CAPITAL .............................................................................................................................................................. 215

CONSIDERATIONS FOR INTERNATIONAL PROPERTIES.............................................................................................................. 216

PRODUCTION SHARING CONTRACTS ......................................................................................................................................... 216

OWNERSHIP ................................................................................................................................................................................. 217

COST RECOVERY ........................................................................................................................................................................ 217

PROFIT OIL ................................................................................................................................................................................... 218

INCOME TAXES ........................................................................................................................................................................... 218

SERVICE CONTRACTS .................................................................................................................................................................... 218

TYPICAL INTERNATIONAL FISCAL REGIMES BY COUNTRY ................................................................................................ 219

DIFFERENCES TO TYPICAL NORTH AMERICAN FISCAL SYSTEMS ..................................................................................... 220

PRICING ........................................................................................................................................................................................ 220

ROYALTY ..................................................................................................................................................................................... 220

TERM ............................................................................................................................................................................................. 220

BONUSES ...................................................................................................................................................................................... 221

WORK COMMITMENTS .............................................................................................................................................................. 221

ABANDONMENT, DECOMMISIONING AND RECLAMATION COSTS ................................................................................ 221

GENERAL AND ADMINISTRATIVE COSTS ............................................................................................................................. 222

ASSIGNING RESERVES .............................................................................................................................................................. 222

ECONOMIC MODELS ....................................................................................................................................................................... 223

INCOME TAX TREATMENT ....................................................................................................................................................... 227

RECOMMENDED READING ........................................................................................................................................................... 228

SAMPLE

Society of Petroleum Evaluation Engineers (Calgary Chapter) x | P a g e

4 FINANCIAL ANALYSIS AND BENCHMARKING PRACTICES ........................................................................................................... 229

INTRODUCTION ................................................................................................................................................................................... 230

NETBACK CALCULATIONS ............................................................................................................................................................... 230

FINDING AND DEVELOPMENT COSTS ............................................................................................................................................ 230

FINDING AND DEVELOPMENT CALCULATION METHODS .................................................................................................... 230

FINDING COST ............................................................................................................................................................................. 231

4.3.1.1.1 USE OF PROVED RESERVES ONLY ..................................................................................................................................... 231

4.3.1.1.2 PROVED UNDEVELOPED RESERVES .................................................................................................................................. 231

RECOMMENDED F&D CALCULATION METHODS ................................................................................................................ 231

4.3.1.2.1 PROVED PLUS PROBABLE RESERVES ............................................................................................................................... 231

4.3.1.2.2 DEVELOPED AND UNDEVELOPED RESERVES ................................................................................................................. 231

4.3.1.2.2.1 F&D ROLLING AVERAGE ................................................................................................................................................. 231

RESERVES LIFE INDEX ....................................................................................................................................................................... 232

TIME VALUE OF MONEY & PROFITABILITY INDICATORS ......................................................................................................... 232

DISCOUNTED CASH FLOW ANALYSIS ........................................................................................................................................ 232

CALCULATION OF NET PRESENT VALUES ........................................................................................................................... 233

SELECTING DISCOUNT RATES ................................................................................................................................................. 234

PROFITABILITY INDICATORS ....................................................................................................................................................... 234

NET PRESENT VALUE ................................................................................................................................................................ 235

PAYOUT PERIOD ......................................................................................................................................................................... 235

RETURN ON INVESTMENT ........................................................................................................................................................ 235

DISCOUNTED RETURN ON INVESTMENT .............................................................................................................................. 235

INTERNAL RATE OF RETURN ................................................................................................................................................... 236

FINANCIAL RATE OF RETURN ................................................................................................................................................. 236

COMMENTS ON USING CASH FLOW FORECASTS .................................................................................................................... 236

VALIDATION AND RECONCILIATION OF RESERVES AND VALUE ESTIMATES .................................................................... 237

VALIDATION .................................................................................................................................................................................... 238

RECONCILIATION ........................................................................................................................................................................... 239

PRODUCT TYPES ......................................................................................................................................................................... 239

CHANGE CATEGORIES .............................................................................................................................................................. 240

4.6.2.2.1 IMPLICATIONS OF CHANGE CATEGORIES ....................................................................................................................... 241

ACQUISITIONS AND DISPOSITIONS ........................................................................................................................................ 242

SPECIAL RESERVES CHANGES ................................................................................................................................................ 243

SPECIAL RESOURCES CHANGES ............................................................................................................................................. 244

EXAMPLE RESERVES RECONCILIATION ............................................................................................................................... 245

EXAMPLE RESOURCES RECONCILIATION ............................................................................................................................ 247

NET PRESENT VALUE RECONCILIATION ................................................................................................................................... 249

NPV CHANGE CATEGORIES ...................................................................................................................................................... 249

SAMPLE

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5 PURPOSE OF EVALUATIONS.................................................................................................................................................................. 251

INTRODUCTION ................................................................................................................................................................................... 252

USES OF EVALUATIONS ..................................................................................................................................................................... 252

OPERATING ENTITIES .................................................................................................................................................................... 252

FINANCIAL AND OTHER USERS ................................................................................................................................................... 253

GOVERNMENT RESOURCES MANAGEMENT ............................................................................................................................ 253

LEVELS OF RESOURCE EVALUATIONS .......................................................................................................................................... 255

DEFINITIONS .................................................................................................................................................................................... 255

USE OF THE TERMS - QUALIFIED RESERVE EVALUATOR AND QUALIFIED RESERVES AUDITOR .......................... 256

EVALUATION ................................................................................................................................................................................... 256

INDEPENDENT EVALUATIONS ................................................................................................................................................ 256

AUDIT ................................................................................................................................................................................................ 257

LIMITATIONS ON RESPONSIBILITY OF RESERVES AUDITORS ........................................................................................ 257

PROCEDURES FOR AUDITING RESOURCE INFORMATION ................................................................................................ 258

5.3.3.2.1 EARLY APPOINTMENT OF RESERVES AUDITORS ........................................................................................................... 258

5.3.3.2.2 DISCLOSURE OF THE POSSIBILITY OF A QUALIFIED AUDIT OPINION ...................................................................... 258

5.3.3.2.3 INTERIM AUDIT PROCEDURES ............................................................................................................................................ 258

5.3.3.2.4 GENERAL MATTERS CONCERNING RESOURCE INFORMATION .................................................................................. 258

5.3.3.2.5 TESTING FOR COMPLIANCE ................................................................................................................................................ 259

5.3.3.2.6 SUBSTANTIVE TESTING ........................................................................................................................................................ 259

RECORDS AND DOCUMENTATION WITH RESPECT TO AUDIT ......................................................................................... 259

FORM OF UNQUALIFIED AUDIT OPINIONS AND OTHER FORMS ..................................................................................... 260

RESOURCE REVIEWS ...................................................................................................................................................................... 260

EVALUATOR ENGAGEMENT ............................................................................................................................................................. 265

SCOPE ................................................................................................................................................................................................ 265

RETENTION AND TERMINATION TERMS ................................................................................................................................... 265

QUALIFICATIONS OF EVALUATORS AND AUDITORS, ENFORCEMENT AND DISCIPLINE .............................................. 266

QUALIFICATIONS ....................................................................................................................................................................... 266

5.4.3.1.1 QUALIFIED RESERVES EVALUATOR ................................................................................................................................. 267

5.4.3.1.2 QUALIFIED RESERVES AUDITOR ........................................................................................................................................ 267

PRACTICE REVIEWS, AUDITS, ENFORCEMENT, AND DISCIPLINE ................................................................................... 267

CONTINUING EDUCATION ........................................................................................................................................................ 268

STANDARDS ..................................................................................................................................................................................... 268

RESULTS ............................................................................................................................................................................................ 269

CONFIDENTIALITY ......................................................................................................................................................................... 269

OBLIGATIONS ....................................................................................................................................................................................... 274

A COMPANY, ITS EVALUATORS AND AUDITORS .................................................................................................................... 274

ROLE OF THE RESOURCES COMMITTEE OF THE BOARD OF DIRECTORS .......................................................................... 274

ROLE OF THE RESOURCES REVIEW COMMITTEE .................................................................................................................... 275

ROLE OF THE FINANCIAL AUDITORS ......................................................................................................................................... 275

ROLE AND RELATIONSHIP OF A COMPANY AND ITS RESERVES EVALUATORS AND AUDITORS ............................... 275

EVALUATION PROCESS CONTROLS ........................................................................................................................................... 276

QRE / QRA QUALIFICATIONS AND SELECTION.................................................................................................................... 277

STANDARDS OF INDEPENDENCE FOR RESERVES EVALUATORS AND AUDITORS ..................................................... 277

STANDARDS OF OBJECTIVITY FOR RESERVES EVALUATORS AND AUDITORS EMPLOYED BY COMPANIES ...... 278

DATA CONVEYANCE AND DATA SECURITY ........................................................................................................................ 279

RESULTS REVIEW ....................................................................................................................................................................... 280

APPROVAL AND DISCLOSURE ................................................................................................................................................. 281

CONTENTS OF AN EVALUATION REPORT ..................................................................................................................................... 282

BASIC INFORMATION ..................................................................................................................................................................... 282

EXECUTIVE SUMMARY ................................................................................................................................................................. 283

SUPPORTING INFORMATION FOR MAJOR PROPERTY REPORTING ..................................................................................... 285

EVALUATION OF MINOR PROPERTIES ....................................................................................................................................... 287

QUALIFICATION AND USE OF RESULTS FOR REPORTING PURPOSES ................................................................................ 287

TIMELINESS OF REPORTS.............................................................................................................................................................. 287

REGIME SPECIFIC REQUIREMENTS............................................................................................................................................. 287

AGGREGATION OF RESOURCE ESTIMATES .................................................................................................................................. 288

PRINCIPLES OF AGGREGATION ................................................................................................................................................... 288

METHOD OF AGGREGATION .................................................................................................................................................... 288

LEVELS OF AGGREGATION ...................................................................................................................................................... 288

REPORTED RESERVES ............................................................................................................................................................... 289

SAMPLE

Society of Petroleum Evaluation Engineers (Calgary Chapter) xii | P a g e

AGGREGATION AND THE CENTRAL LIMIT THEORY .......................................................................................................... 290

DEPENDENCY .............................................................................................................................................................................. 290

THE PORTFOLIO EFFECT ........................................................................................................................................................... 290

GUIDANCE ON AGGREGATION .................................................................................................................................................... 292

AGGREGATING DETERMINISTIC ESTIMATES ...................................................................................................................... 292

AGGREGATING PROBABILISTIC ESTIMATES ....................................................................................................................... 294

COMPARISON OF DETERMINISTIC AND PROBABILISTIC ESTIMATES ........................................................................... 294

AGGREGATION OF RESOURCE OTHER THAN RESERVES .................................................................................................. 296

5.7.2.4.1 AGGREGATION OF INDIVIDUAL WELL ESTIMATES TO THE PROPERTY LEVEL ..................................................... 296

5.7.2.4.2 AGGREGATION OF INDIVIDUAL PROSPECTS INTO AN EXPLORATION PORTFOLIO .............................................. 297

AGGREGATING ACROSS RESOURCE CLASSES .................................................................................................................... 298

SAMPLE

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6 DETAILED GUIDELINES FOR THE ESTIMATION AND CLASSIFICATION OF COALBED METHANE (CBM) RESERVES AND

RESOURCES ............................................................................................................................................................................................... 299

INTRODUCTION ................................................................................................................................................................................... 300

RESOURCE CLASS CLASSIFICATIONS AND DEFINITIONS FOR CBM ....................................................................................... 300

CBM RESOURCE CLASSIFICATION .............................................................................................................................................. 300

GENERAL REQUIREMENTS FOR CLASSIFICATION OF CBM RESERVES .................................................................................. 300

INTRODUCTION ............................................................................................................................................................................... 300

OWNERSHIP CONSIDERATIONS ................................................................................................................................................... 301

DEFINITION OF TERMS .............................................................................................................................................................. 301

CBM OWNERSHIP BY PROVINCE ............................................................................................................................................. 301

6.3.2.2.1 ALBERTA .................................................................................................................................................................................. 301

6.3.2.2.1.1 CROWN (PROVINCIAL) ..................................................................................................................................................... 301

6.3.2.2.1.2 CROWN (FEDERAL)............................................................................................................................................................ 301

6.3.2.2.1.3 FREEHOLD (ONE OWNER FOR BOTH NATURAL GAS AND COAL) .......................................................................... 302

6.3.2.2.1.4 FREEHOLD (SPLIT-TITLE) ................................................................................................................................................. 302

6.3.2.2.2 BRITISH COLUMBIA ............................................................................................................................................................... 302

6.3.2.2.3 SASKATCHEWAN ................................................................................................................................................................... 302

DRILLING REQUIREMENTS ........................................................................................................................................................... 302

TESTING REQUIREMENTS ............................................................................................................................................................. 302

REGULATORY CONSIDERATIONS ............................................................................................................................................... 303

INFRASTRUCTURE AND MARKET CONSIDERATIONS ............................................................................................................ 303

TIMING OF PRODUCTION AND DEVELOPMENT ....................................................................................................................... 303

ECONOMIC REQUIREMENTS ........................................................................................................................................................ 303

PROCEDURES FOR ESTIMATION AND CLASSIFICATION OF CBM RESERVES ....................................................................... 304

DETERMINISTIC AND PROBABILISTIC METHODS ................................................................................................................... 304

VOLUMETRIC METHOD ................................................................................................................................................................. 305

DATA USED FOR VOLUMETRIC METHODS ........................................................................................................................... 306

6.4.2.1.1 GEOPHYSICAL DATA ............................................................................................................................................................. 307

6.4.2.1.2 GEOLOGICAL DATA ............................................................................................................................................................... 307

6.4.2.1.2.1 NET PAY ............................................................................................................................................................................... 307

6.4.2.1.2.2 ASH AND WATER CONTENT (COAL GRADE) ............................................................................................................... 308

6.4.2.1.2.3 COAL RANK AND COMPOSITION ................................................................................................................................... 309

6.4.2.1.2.4 COAL DENSITY ................................................................................................................................................................... 309

6.4.2.1.2.5 CLEAT VOLUME AND SATURATION ............................................................................................................................. 309

6.4.2.1.2.6 POOL AREA ......................................................................................................................................................................... 310

6.4.2.1.3 RESERVOIR ENGINEERING DATA....................................................................................................................................... 310

6.4.2.1.3.1 ADSORPED GAS CONTENT............................................................................................................................................... 310

6.4.2.1.3.2 FLUID ANALYSIS ............................................................................................................................................................... 311

6.4.2.1.3.3 GAS FORMATION VOLUME FACTOR ............................................................................................................................. 311

6.4.2.1.3.4 RESERVOIR PRESSURE ..................................................................................................................................................... 311

6.4.2.1.3.5 RESERVOIR TEMPERATURE ............................................................................................................................................ 311

6.4.2.1.3.6 GAS SHRINKAGE AND HEATING VALUE ...................................................................................................................... 311

CONSIDERATIONS IN THE USE OF CBM VOLUMETRIC METHODS .................................................................................. 312

MATERIAL BALANCE METHODS ................................................................................................................................................. 312

DATA USED FOR MATERIAL BALANCE METHODS ............................................................................................................. 313

6.4.3.1.1 LANGMUIR VOLUME AND PRESSURE ............................................................................................................................... 313

6.4.3.1.2 GAS COMPRESSIBILITY FACTOR ........................................................................................................................................ 315

6.4.3.1.3 WATER FORMATION VOLUME FACTOR ........................................................................................................................... 315

CONSIDERATIONS IN THE USE OF CBM MATERIAL BALANCE METHODS .................................................................... 315

6.4.3.2.1 PRESSURE DATA, PERMEABILITY AND POOL BOUNDARIES ....................................................................................... 315

6.4.3.2.2 AQUIFERS ................................................................................................................................................................................. 315

6.4.3.2.3 MULTI-LAYER RESERVOIRS ................................................................................................................................................ 316

DYNAMIC MATERIAL BALANCE FOR CBM .......................................................................................................................... 316

ANALOGY METHODS ..................................................................................................................................................................... 316

USE OF ANALOGIES AS A PRIMARY METHOD ..................................................................................................................... 317

6.4.4.1.1 WHEN OTHER METHODS ARE NOT RELIABLE ................................................................................................................ 317

6.4.4.1.2 UNDEVELOPED RESERVES ASSIGNED FOR INFILL DRILLING..................................................................................... 317

USE OF ANALOGIES FOR SPECIFIC RESERVES PARAMETERS ......................................................................................... 318

6.4.4.2.1 AREA ASSIGNMENTS ............................................................................................................................................................. 318

6.4.4.2.2 RECOVERY FACTORS ............................................................................................................................................................ 318

6.4.4.2.3 PERFORMANCE CHARACTERISTICS .................................................................................................................................. 318

SAMPLE

Society of Petroleum Evaluation Engineers (Calgary Chapter) xiv | P a g e

PRODUCTION DECLINE METHODS .............................................................................................................................................. 319

CURVE FITTING ........................................................................................................................................................................... 319

TYPE CURVE MATCHING FOR DRY OR DEWATERED CBM ............................................................................................... 320

FACTORS AFFECTING PRODUCTION BEHAVIOUR .............................................................................................................. 321

6.4.5.3.1 ROCK AND FLUID PROPERTIES ........................................................................................................................................... 321

6.4.5.3.1.1 STRATIFICATION AND COMMINGLING ........................................................................................................................ 321

6.4.5.3.1.2 WATER SATURATION – DRY VERSUS WET COALS .................................................................................................... 321

6.4.5.3.1.3 LANGMUIR VOLUME AND PRESSURE ........................................................................................................................... 322

6.4.5.3.1.4 PERMEABILITY AND SKIN ............................................................................................................................................... 322

6.4.5.3.1.5 MATRIX SHRINKAGE (PERMEABILITY REBOUND) .................................................................................................... 323

6.4.5.3.1.6 CLEAT VOLUME ................................................................................................................................................................. 325

6.4.5.3.1.7 RELATIVE PERMEABILITY .............................................................................................................................................. 326

6.4.5.3.2 DRIVE MECHANISM ............................................................................................................................................................... 326

6.4.5.3.2.1 AQUIFER RECHARGE ........................................................................................................................................................ 326

6.4.5.3.3 COMPLETION AND OPERATING PRACTICES .................................................................................................................... 326

6.4.5.3.3.1 STIMULATION TECHNIQUES AND SKIN FACTOR ....................................................................................................... 327

6.4.5.3.3.2 WORKOVERS....................................................................................................................................................................... 327

6.4.5.3.3.3 INFILL DRILLING ............................................................................................................................................................... 328

6.4.5.3.3.4 BACK PRESSURE ................................................................................................................................................................ 328

6.4.5.3.3.5 MEASUREMENT AND TEST FREQUENCY ..................................................................................................................... 328

6.4.5.3.3.6 LIQUID LOADING AND SWABBING FREQUENCY ....................................................................................................... 329

6.4.5.3.3.7 CORROSION ......................................................................................................................................................................... 329

6.4.5.3.3.8 FACILITY CONSTRAINTS ................................................................................................................................................. 329

6.4.5.3.4 TYPE OF WELLBORE .............................................................................................................................................................. 329

6.4.5.3.4.1 HORIZONTAL VERSUS VERTICAL WELLS .................................................................................................................... 329

GUIDELINES FOR INDIVIDUAL WELL DECLINE ANALYSIS .............................................................................................. 330

6.4.5.4.1 RESERVOIR PROPERTIES REVIEW ...................................................................................................................................... 330

6.4.5.4.2 ANALOGY REVIEW ................................................................................................................................................................ 330

6.4.5.4.3 DEWATERING PERIOD ESTIMATION .................................................................................................................................. 331

6.4.5.4.4 PRESSURE BUILD-UP ANALYSIS ......................................................................................................................................... 331

6.4.5.4.5 FINAL RATE DETERMINATION............................................................................................................................................ 331

6.4.5.4.6 OPERATING CONSTRAINT REVIEW ................................................................................................................................... 331

6.4.5.4.7 PRODUCTION DATA SELECTION ........................................................................................................................................ 331

6.4.5.4.8 LINE PRESSURE ADJUSTMENTS .......................................................................................................................................... 331

6.4.5.4.9 INTERFERENCE EFFECTS ..................................................................................................................................................... 331

GUIDELINES FOR GROUP DECLINE ANALYSIS .................................................................................................................... 331

6.4.5.5.1 GROUPING................................................................................................................................................................................ 331

6.4.5.5.2 TYPE WELL ANALYSIS .......................................................................................................................................................... 332

RESERVOIR SIMULATION METHODS.......................................................................................................................................... 332

ANALYTICAL SIMULATION...................................................................................................................................................... 332

NUMERICAL SIMULATION ....................................................................................................................................................... 333

LIMITATIONS OF METHODS ......................................................................................................................................................... 333

EVALUATION OF CBM RESERVES EXAMPLES ......................................................................................................................... 334

CBM EXAMPLE A ........................................................................................................................................................................ 334

CBM EXAMPLE B ........................................................................................................................................................................ 335

CBM EXAMPLE C ........................................................................................................................................................................ 336

CBM EXAMPLE D ........................................................................................................................................................................ 337

CBM EXAMPLE E ......................................................................................................................................................................... 338

CBM EXAMPLE F ......................................................................................................................................................................... 339

CBM EXAMPLE G ........................................................................................................................................................................ 340

CBM EXAMPLE H ........................................................................................................................................................................ 341

CBM EXAMPLE I .......................................................................................................................................................................... 342

GUIDELINES FOR CLASSIFYING CBM RESERVES AND RESOURCES ................................................................................... 343

DETERMINATION OF ORIGINAL GAS-IN-PLACE .................................................................................................................. 343

IMPORTANCE OF GAS CONTENT DATA ................................................................................................................................. 343

DETERMINATION OF RECOVERY FACTOR ........................................................................................................................... 343

6.4.9.3.1 VALIDATION OF RESERVES/RESOURCES USING ALTERNATE METHODS ................................................................ 343

6.4.9.3.2 WELL DENSITY AND ASSIGNED SPACING AREA ............................................................................................................ 343

6.4.9.3.3 COMMERCIALITY AND ECONOMICS ................................................................................................................................. 344

6.4.9.3.4 OWNERSHIP AND REGULATORY APPROVALS ................................................................................................................ 345

6.4.9.3.5 RESERVES RELATED TO FUTURE DRILLING ................................................................................................................... 345

SAMPLE

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6.4.9.3.6 DRILLING SPACING UNIT ..................................................................................................................................................... 345

6.4.9.3.7 INFILL WELLS ......................................................................................................................................................................... 346

6.4.9.3.8 DELINEATION OR STEP-OUT WELLS ................................................................................................................................. 346

INTEGRATION OF ESTIMATION METHODS ........................................................................................................................... 346

CLASSIFICATION CASE STUDIES ................................................................................................................................................. 348

EXAMPLE 1 ................................................................................................................................................................................... 348

EXAMPLE 2 ................................................................................................................................................................................... 350

EXAMPLE 3 ................................................................................................................................................................................... 352

RESERVES RELATED TO PLANNED ENHANCED RECOVERY PROJECTS ............................................................................ 354

ECONOMICS ..................................................................................................................................................................................... 354

CAPITAL COSTS FOR EXPLORATION AND DEVELOPMENT .............................................................................................. 354

OPERATING COSTS ..................................................................................................................................................................... 354

METHANE PRICING .................................................................................................................................................................... 354

ROYALTIES .................................................................................................................................................................................. 355

CBM APPENDIX .................................................................................................................................................................................... 356

CURRENT STATE OF CBM IN CANADA....................................................................................................................................... 356

COAL DEPOSITS IN CANADA ................................................................................................................................................... 356

CBM DEVELOPMENT IN ALBERTA ......................................................................................................................................... 358

CBM POTENTIAL ............................................................................................................................................................................. 360

SAMPLE

Society of Petroleum Evaluation Engineers (Calgary Chapter) xvi | P a g e

7 DETAILED GUIDELINES FOR THE ESTIMATION AND CLASSIFICATION OF BITUMEN RESERVES AND RESOURCES ....... 361

INTRODUCTION ................................................................................................................................................................................... 362

BITUMEN RECOVERY METHODS ..................................................................................................................................................... 363

MINING .............................................................................................................................................................................................. 363

IN-SITU METHODS .......................................................................................................................................................................... 363

PROJECT MANAGEMENT ................................................................................................................................................................... 363

PROJECT SCENARIOS ..................................................................................................................................................................... 364

PROJECT MANAGEMENT STANDARDS ...................................................................................................................................... 364

MINING .......................................................................................................................................................................................... 365

IN-SITU .......................................................................................................................................................................................... 365

UPGRADING AND CO-GENERATION ........................................................................................................................................... 365

THE CLASSIFICATION OF BITUMEN RESERVES AND RESOURCES .......................................................................................... 366

TOTAL AND UNDISCOVERED PETROLEUM INITIALLY IN-PLACE (PIIP) ............................................................................ 366

PROSPECTIVE RESOURCES ....................................................................................................................................................... 366

DISCOVERED PETROLEUM INITIALLY IN-PLACE (DISCOVERED PIIP) ............................................................................... 366

EXPLOITABLE AND MINEABLE VOLUMES AMENABLE TO RECOVERY ........................................................................ 368

RESERVES ..................................................................................................................................................................................... 368

7.4.2.2.1 GENERAL REQUIREMENTS .................................................................................................................................................. 368

7.4.2.2.1.1 OWNERSHIP CONSIDERATIONS...................................................................................................................................... 368

7.4.2.2.1.2 DRILLING REQUIREMENTS .............................................................................................................................................. 368

7.4.2.2.1.3 IN-SITU BITUMEN RECOVERY FLOW TESTING ........................................................................................................... 369

7.4.2.2.1.4 EXTRAPOLATION OF DRILLING AND TESTING FOR BITUMEN RECOVERY ......................................................... 369

7.4.2.2.1.5 AVAILABILITY OF FUNDING ........................................................................................................................................... 370

CONTINGENT RESOURCES ....................................................................................................................................................... 370

7.4.2.3.1 DRILLING AND TESTING REQUIREMENTS ....................................................................................................................... 370

7.4.2.3.2 RECOVERY TECHNOLOGY CONSIDERATIONS ................................................................................................................ 370

7.4.2.3.3 REGULATORY CONSIDERATIONS ...................................................................................................................................... 370

7.4.2.3.4 INFRASTRUCTURE AND MARKET CONSIDERATIONS ................................................................................................... 370

7.4.2.3.5 TIMING OF PRODUCTION AND DEVELOPMENT .............................................................................................................. 370

UNRECOVERABLE BITUMEN INITIALLY IN-PLACE ................................................................................................................ 372

EVALUATION OF BITUMEN RESERVES AND RESOURCES ......................................................................................................... 372

EVALUATION GUIDELINES AND PROCEDURES ....................................................................................................................... 372

BITUMEN RECOVERY PROCESSES AND EVALUATION ...................................................................................................... 372

THE EVALUATION PROCESS .................................................................................................................................................... 372

7.5.1.2.1 EVALUATION STAGES .......................................................................................................................................................... 373

7.5.1.2.2 VOLUMETRIC EVALUATION ................................................................................................................................................ 373

7.5.1.2.3 PERFORMANCE-BASED EVALUATION .............................................................................................................................. 374

7.5.1.2.4 RECOVERY FACTOR .............................................................................................................................................................. 374

DETERMINISTIC AND PROBABILISTIC METHODS .............................................................................................................. 374

ESTIMATION OF BITUMEN IN-PLACE ......................................................................................................................................... 375

GEOLOGICAL DATA ................................................................................................................................................................... 375

PETROPHYSICS AND CORE ANALYSIS .................................................................................................................................. 375

7.5.2.2.1 GEOPHYSICAL DATA ............................................................................................................................................................. 377

7.5.2.2.2 TOPOGRAPHIC DATA ............................................................................................................................................................ 377

CUT-OFF CRITERIA ..................................................................................................................................................................... 377

EVALUATION OF BITUMEN RESOURCES AND RESERVES – MINING .................................................................................. 378

ESTIMATION OF BITUMEN IN-PLACE AMENABLE TO OPEN PIT MINING ...................................................................... 378

7.5.3.1.1 GEOLOGICAL CHARACTERIZATION .................................................................................................................................. 378

7.5.3.1.2 DATA REQUIREMENTS .......................................................................................................................................................... 378

7.5.3.1.3 APPLICATION OF CRITERIA TO ESTIMATE POTENTIALLY MINEABLE BITUMEN IN-PLACE ................................ 379

ESTIMATION OF RECOVERABLE BITUMEN VOLUMES ...................................................................................................... 381

7.5.3.2.1 MINE PLANNING ..................................................................................................................................................................... 381

7.5.3.2.1.1 CONCEPTUAL MINE PLAN/SCOPING LEVEL STUDY .................................................................................................. 381

7.5.3.2.1.2 PRELIMINARY FEASIBILITY STUDY .............................................................................................................................. 382

7.5.3.2.1.3 FEASIBILITY STUDY.......................................................................................................................................................... 382

7.5.3.2.2 ESTIMATION OF RECOVERY FACTOR ............................................................................................................................... 383

PRODUCTION FORECASTING AND ECONOMIC EVALUATION ......................................................................................... 384

7.5.3.3.1 PRODUCTION FORECASTING .............................................................................................................................................. 384

7.5.3.3.2 ECONOMIC CRITERIA ............................................................................................................................................................ 384

EVALUATION OF BITUMEN RESOURCES AND RESERVES - IN-SITU PROCESSES ............................................................. 384

THE EVALUATION PROCESS .................................................................................................................................................... 385

SAMPLE

Canadian Oil and Gas Evaluation Handbook – Consolidated 3rd Edition – (Online) xvii | P a g e

7.5.4.1.1 RESERVOIR CHARACTERIZATION ..................................................................................................................................... 385

7.5.4.1.2 GEOLOGICAL DATA REQUIREMENTS FOR IN-SITU PROJECTS .................................................................................... 386

7.5.4.1.3 DATA REQUIREMENTS AND WELL DENSITY................................................................................................................... 387

USE OF ANALOGS AND PILOT PROJECTS .............................................................................................................................. 388

RESERVOIR SIMULATION ......................................................................................................................................................... 389

IN-SITU RECOVERY PROCESSES ............................................................................................................................................. 390

7.5.4.4.1 CYCLIC STEAM STIMULATION (CSS) ................................................................................................................................. 390

7.5.4.4.1.1 GEOLOGICAL ENVIRONMENTS FOR CSS ...................................................................................................................... 391

7.5.4.4.1.2 RESERVOIR CRITERIA FOR CSS ...................................................................................................................................... 392

7.5.4.4.1.3 HORIZONTAL AND VERTICAL BARRIERS .................................................................................................................... 394

7.5.4.4.1.4 ESTIMATION OF RECOVERY FACTORS ......................................................................................................................... 395

7.5.4.4.1.4.1 RECOVERY FACTORS BASED ON ANALOGS 395

7.5.4.4.1.4.2 RECOVERY FACTORS BASED ON RESERVOIR SIMULATION 395

7.5.4.4.1.4.3 RECOVERY FACTORS BASED ON PERFORMANCE DATA 395

7.5.4.4.1.4.4 PRODUCTION FORECASTS 396

7.5.4.4.2 STEAM-ASSISTED GRAVITY DRAINAGE (SAGD)............................................................................................................. 396

7.5.4.4.2.1 GEOLOGICAL ENVIRONMENTS FOR SAGD .................................................................................................................. 397

7.5.4.4.2.2 RESERVOIR CRITERIA FOR SAGD .................................................................................................................................. 398

7.5.4.4.2.3 RESERVOIR CHARACTERIZATION FOR SAGD ............................................................................................................. 399

7.5.4.4.2.3.1 RESERVOIR PERMEABILITY 399

7.5.4.4.2.3.2 PERMEABILITY BARRIERS 399

7.5.4.4.2.3.3 IMPAIRMENT/THIEF ZONES 400

7.5.4.4.2.3.4 FLUID CHARACTERISTICS 401

7.5.4.4.2.3.5 RESERVOIR PRESSURE 401

7.5.4.4.2.4 ESTIMATION OF RECOVERY FACTORS ......................................................................................................................... 402

7.5.4.4.2.4.1 RECOVERY FACTORS BASED ON ANALOGS 402

7.5.4.4.2.4.2 RECOVERY FACTORS BASED ON SIMULATION 402

7.5.4.4.2.4.3 A FIVE-COMPONENT RECOVERY FACTOR METHOD 403

7.5.4.4.2.4.3.1 SURFACE AREAL EXPLOITATION FACTOR ............................................................................................................. 403

7.5.4.4.2.4.3.2 VERTICAL EXPLOITATION FACTOR.......................................................................................................................... 404

7.5.4.4.2.4.3.3 STEAM CHAMBER GEOMETRY FACTOR .................................................................................................................. 406

7.5.4.4.2.4.3.4 HORIZONTAL LENGTH CONFORMANCE FACTOR.................................................................................................. 407

7.5.4.4.2.4.3.5 IN-CHAMBER RECOVERY FACTOR............................................................................................................................ 409

7.5.4.4.2.4.4 COMBINING THE FIVE COMPONENTS TO DETERMINE OVERALL RECOVERY FACTOR 409

7.5.4.4.2.4.5 EXPLANATION OF RECOVERY FACTOR COMPONENTS IN A REPORT 410

7.5.4.4.2.5 SAGD PRODUCTION FORECASTS ................................................................................................................................... 410

7.5.4.4.2.6 ESTIMATES OF WELL DELIVERABILITY....................................................................................................................... 411

7.5.4.4.2.7 FORECASTING STEAM-OIL RATIO ................................................................................................................................. 412

7.5.4.4.2.8 STEAM QUALITY ................................................................................................................................................................ 412

7.5.4.4.2.9 DETERMINATION OF ECONOMIC LIMIT ....................................................................................................................... 413

7.5.4.4.3 IN-SITU RECOVERY PROCESS TO BE DEVELOPED ......................................................................................................... 413

REVIEW OF OIL SANDS THERMAL OPERATIONS ................................................................................................................ 414

7.5.4.5.1 STEAM-OIL RATIO (SOR) ...................................................................................................................................................... 414

7.5.4.5.2 COMPARISON OF STEAM INJECTED (CWE) TO WATER PRODUCED ........................................................................... 414

7.5.4.5.3 COMPARISON OF ACTUAL TO FORECAST PRODUCTION .............................................................................................. 414

7.5.4.5.4 FIELD MONITORING OF RECOVERY PROCESS ................................................................................................................ 414

ECONOMIC FACTORS UNIQUE TO BITUMEN EVALUATION.................................................................................................. 415

PRODUCTS AND PRODUCT PRICING ...................................................................................................................................... 415

7.5.5.1.1 BITUMEN .................................................................................................................................................................................. 416

7.5.5.1.2 BITUMEN DILUENTS/BLENDS ............................................................................................................................................. 416

7.5.5.1.3 SYNTHETIC CRUDE ................................................................................................................................................................ 416

7.5.5.1.4 POINT OF SALE CONSIDERATIONS .................................................................................................................................... 417

7.5.5.1.5 TRANSFER PRICING ............................................................................................................................................................... 417

7.5.5.1.6 BLENDING RATIOS AND NETBACK DETERMINATION .................................................................................................. 418

EXAMPLE NETBACK CALCULATION ..................................................................................................................................... 418

PRODUCT PRICING FOR DILUENT ........................................................................................................................................... 419

NATURAL GAS PRICING ............................................................................................................................................................ 419

CAPITAL AND OPERATING COSTS .............................................................................................................................................. 419

CAPITAL COSTS .......................................................................................................................................................................... 419

CAPITAL METRICS ...................................................................................................................................................................... 420

OPERATING COSTS ..................................................................................................................................................................... 421

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COST VARIANCE ......................................................................................................................................................................... 421

ENVIRONMENTAL COSTS ......................................................................................................................................................... 421

OIL SANDS ROYALTIES ................................................................................................................................................................. 422

ACCESS TO MARKETS .................................................................................................................................................................... 422

BITUMEN APPENDIX – WESTERN CANADA AND OTHER COUNTRY BITUMEN DEPOSITS ................................................. 423

COLD LAKE REGION ....................................................................................................................................................................... 423

ATHABASCA REGION ..................................................................................................................................................................... 424

WABASCA REGION ......................................................................................................................................................................... 424

PEACE RIVER REGION .................................................................................................................................................................... 425

MISSISSIPPIAN AND DEVONIAN CARBONATES ....................................................................................................................... 425

SASKATCHEWAN ............................................................................................................................................................................ 425

BITUMEN ACCUMULATIONS IN OTHER COUNTRIES .............................................................................................................. 425

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APPENDICIES ..................................................................................................................................................................................................... 426

APPENDIX A — GLOSSARY ............................................................................................................................................................................ 427

APPENDIX B — ABBREVIATIONS AND ACRONYMS ................................................................................................................................. 447

APPENDIX C — METRIC VS. IMPERIAL SYSTEMS OF UNITS ................................................................................................................... 451

APPENDIX D — REFERENCES......................................................................................................................................................................... 455SAMPLE

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Tables and Figures

Table 1-1 Summary of Resource Type ..................................................................................................................................................................... 5

Figure 1-1 SPE-PRMS Resources Classification System ....................................................................................................................................... 12

Figure 1-2 Sub-classes based on project maturity ................................................................................................................................................... 15

Figure 1-3 Schematic Illustration of the Relationship Between the Stage of Technology Development and Resource Classification. ................... 25

Table 1-2 Technology Requirements for Recoverable Resource Classes................................................................................................................ 26

Figure 1-4 Reclassification of Contingent Resources to Reserves. ......................................................................................................................... 50

Figure 1-5 Flow Chart Illustrating the Relationship Among the Project Maturity Sub-Classes for Contingent Resources. .................................... 53

Figure 1-6 Requirements for the Assignment of a Project Maturity Sub-class of Development Pending. .............................................................. 54

Figure 1-7 Requirements for the Assignment of a Project Maturity Sub-class of Development on Hold. .............................................................. 55

Figure 1-8 Requirements for the Assignment of a Project Maturity Sub-class of Development Unclarified. ......................................................... 57

Table 1-3 Recoverable Resource Class and Project Level Minimum Requirements ............................................................................................... 64

Figure 1-9 Effect on NPV of Applying Chance of Failure ..................................................................................................................................... 67

Figure 1-10 Relative Frequency Curve ................................................................................................................................................................... 67

Figure 1-11 Cumulative Relative Frequency Curve................................................................................................................................................ 67

Figure 1-12 Measures of Central Tendency and Dispersion. .................................................................................................................................. 68

Figure 1-13 Statistical Terms for Reserves ............................................................................................................................................................. 70

Figure 1-14 Reserves Estimates vs. Time ............................................................................................................................................................... 72

Table 1-4 Uncertainty in Reserves Estimates.......................................................................................................................................................... 73

Table 1-5 Expected Reserves and Net Present Values ............................................................................................................................................ 74

Figure 1-15 Decision Tree ...................................................................................................................................................................................... 74

Figure 1-16 Material Balance, Gas Reservoir “A” ................................................................................................................................................. 77

Figure 1-17 Material Balance, Gas Reservoir “B” .................................................................................................................................................. 78

Figure 2-1 Use and Reliability of Reserves Estimation Methods with Time. ......................................................................................................... 81

Table 2-1 Data Requirements Over Pool/Reservoir Life ........................................................................................................................................ 85

Figure 2-2 Black Oils Phase Envelope ................................................................................................................................................................... 89

Figure 2-3 Volatile Oils Phase Envelope ................................................................................................................................................................ 90

Figure 2-4 Condensate/Retrograde Gas Phase Envelope ........................................................................................................................................ 91

Figure 2-5 Rich Gas Phase Envelope...................................................................................................................................................................... 92

Figure 2-6 Dry Gas Phase Envelope ....................................................................................................................................................................... 93

Figure 2-7 Schematic Diagram of Slim Tube Apparatus ........................................................................................................................................ 97

Table 2-2 Data Utilization in Volumetric Methods ................................................................................................................................................. 98

Table 2-3 Data Utilization in Material Balance and Production Analysis Methods ................................................................................................ 98

Figure 2-8 Gas saturated oil FVF correlation results versus solution GOR. ......................................................................................................... 106

Figure 2-9 Conventional Decline Analysis Example ............................................................................................................................................ 109

Figure 2-10 Horizontal Multiple-Stage Fracture Decline Curve ........................................................................................................................... 111

Figure 2-11 Gas rate-cum graphs. Left graph shows MHD, right graph shows conventional Arps decline. ......................................................... 112

Figure 2-12 Modified Hyperbolic Decline Segments ........................................................................................................................................... 112

Figure 2-13 Relationships between Key Geological and Well Design Parameters and Hyperbolic Behaviour..................................................... 113

Figure 2-14 West Pembina HMSF Well (100/13-05-049-12/2) ............................................................................................................................ 114

Figure 2-15 Duvernay HMSF Well (100/13-03-060-19W5/0) – Two-segment go forward forecast .................................................................... 114

Figure 2-16 Duvernay HMSF Well (100/13-03-060-19W5/0) – Three-segment Whole Life Forecast ................................................................. 115

Figure 2-17 Example fit of production data from which the SEDM parameters n and τ can be determined. After a period of "bad data", a linear fit

applies, followed by the appearance of BDF (Li 2013) ......................................................................................................................................... 116

Figure 2-18 Duong plot showing linear relationship between log(q/Gp) and log(t), (Mishra 2012) ...................................................................... 117

Figure 2-19 Plot of Duong rate vs. time function (Mishra 2012) .......................................................................................................................... 117

Figure 2-20 Rate vs. time graph illustrating the Combined Duong-MHD method................................................................................................ 119

Table 2-6 Decline Methodology Comparison from SPEE Monograph 4 .............................................................................................................. 119

Table 2-7 Decline Methodology Strengths and Limitations .................................................................................................................................. 120

Table 2-8 Rock and Fluid Properties Factors ........................................................................................................................................................ 121

Table 2-9 Reservoir Geometry and Drive Mechanisms ........................................................................................................................................ 122

Table 2-10 Wellbore, Completion Technique, and Operating Practices Factors ................................................................................................... 123

Table 2-11 Recommended Guidelines when Individual Performing Decline Analysis ......................................................................................... 124

Table 2-12 Recommended Guidelines when Performing Group Decline Analysis ............................................................................................... 125

Figure 2-21 Range of Uncertainty vs Time .......................................................................................................................................................... 126

Figure 2-22 Suspended Well Example ................................................................................................................................................................. 127

Figure 2-23 Shut-In Well Example ....................................................................................................................................................................... 128

Figure 2-24 Sample Size Cut-Off Example #1 ..................................................................................................................................................... 128

Figure 2-25 No Sample Size Cut-Off Example .................................................................................................................................................... 129

Figure 2-26 Calendar Day vs. Producing Day Rate Example ............................................................................................................................... 129

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Figure 2-27 Normalized to Peak Rate Example .................................................................................................................................................... 130

Figure 2-28 Type Well – Forecasting the Average ............................................................................................................................................... 131

Figure 2-29 Averaging the Forecasts Example ..................................................................................................................................................... 132

Figure 2-30 Sub-Grouping Example – Montney Fracture Spacing and Proppant Loading ................................................................................... 133

Figure 2-31 Sub-Grouping Example – Montney Performance Sorted by Vintage ................................................................................................ 133

Figure 2-32 Performance Sorted by Well Length Normalized to 100 metres of Length ....................................................................................... 134

Figure 2-33 Performance Sorted by Number of Stages Normalized to One Stage ................................................................................................ 135

Figure 2-34 EUR (BCF) vs Total Proppant Placed (t) Cross-Plot ......................................................................................................................... 135

Figure 2-35 Effect of Increased Well Density on EUR (BCF) vs Total Proppant Placed (t) ................................................................................. 136

Figure 2-36 Distribution Type Well Example ...................................................................................................................................................... 137

Figure 2-37 Probit Plot ......................................................................................................................................................................................... 137

Figure 2-38 Cross plot – 12 Month Cumulative Production versus EUR ............................................................................................................. 138

Figure 2-39 Performance “Bands” Example ......................................................................................................................................................... 138

Figure 2-40 Performance “Bands” Example - Lognormal .................................................................................................................................... 139

Figure 2-41 Performance “Bands” Example – Cumulative Production verses Time ............................................................................................ 139

Figure 2-42 Performance “Bands” Example – Rank Mapping ............................................................................................................................. 140

Figure 2-43 Uncertainty Example......................................................................................................................................................................... 140

Figure 2-44 Probit Plot Showing P10/P90 Ratio of 3 ........................................................................................................................................... 141

Figure 2-45 Uncertainty Change Based on Number of Locations......................................................................................................................... 141

Figure 2-46 Multi Well Program Uncertainty ....................................................................................................................................................... 142

Figure 2-47 Vertically fractured well in a rectangular reservoir ........................................................................................................................... 145

Figure 2-48 Infill / Delineation Example .............................................................................................................................................................. 154

Figure 2-49 EUR per well, reservoir recovery factor and NPV as a function of development spacing. ................................................................ 155

Figure 2-50 Distance from a control point example. ............................................................................................................................................. 158

Figure 2-51 Multi-Well Gas Pool Example .......................................................................................................................................................... 163

Figure 2-52 Multi-Well Gas Pool Example Reserves Classification .................................................................................................................... 165

Table 2-13 Multi-Well Gas Pool Example Reserve Assignments ......................................................................................................................... 166

Figure 2-53 - Example G Map .............................................................................................................................................................................. 171

Figure 2-54 Probit Plot with Individual Well EUR Results .................................................................................................................................. 172

Figure 2-55 Probit Plot with De-clustered Well EUR Results .............................................................................................................................. 173

Table 3-1 Example Ownership of Reserves .......................................................................................................................................................... 186

Table 3-2 Example Bitumen Netback Calculation ................................................................................................................................................ 194

Table 3-3 Cash Flow Items ................................................................................................................................................................................... 211

Table 3-4 Cash Flow Input Data ........................................................................................................................................................................... 212

Figure 3-1 Before Tax Cash Flow Output ............................................................................................................................................................ 213

Figure 3-2 After Tax Cash Flow Output ............................................................................................................................................................... 214

Figure 3-3 PSC Agreements – Production Sharing Contract Structure ................................................................................................................. 217

Table 3-5 Table of International Fiscal Regimes .................................................................................................................................................. 219

Figure 3-4 PSC Model Flow Chart ....................................................................................................................................................................... 224

Table 3-6 “Profit Oil” Share ................................................................................................................................................................................. 225

Table 3-7 Offshore PSC Example Output ............................................................................................................................................................. 226

Table 4-1 Reserves Revisions by Category ........................................................................................................................................................... 238

Table 4-2 Sample Reserves Reconciliation ........................................................................................................................................................... 246

Table 4-3 Sample Contingent Resources Reconciliation ...................................................................................................................................... 248

Table 4-4 Reconciliation of Changes in Net Present Values of Future Net Revenue Discounted at 10% Per Year .............................................. 250

Table 5-1 Relationship between Governments and Operating Entities ................................................................................................................. 254

ATTACHMENT A SAMPLE CERTIFICATE OF QUALIFICATION .............................................................................................................. 261

ATTACHMENT B SAMPLE OF UNQUALIFIED AUDIT OPINION OF RESERVES AUDITOR* ............................................................... 262

ATTACHMENT C SAMPLE REPRESENTATION LETTER (for resource evaluations, resource audits, and resource reviews) .................... 263

ATTACHMENT D SAMPLE ENGAGEMENT LETTER .................................................................................................................................. 270

Figure 5-1 Showing the Change in Average Reserves per Entity with Increasing Number of Entities. ................................................................ 291

Figure 5-2 Expectation Curves of Average Reserves Per Entity Showing the Decrease in Uncertainty as the Number of Independent Entities

Increases and the Changes in P90, P50 and P10. ................................................................................................................................................... 292

Table 5-2 Portfolio Effect ..................................................................................................................................................................................... 292

Table 6-1 CBM Applicable Methodologies for Reserves and Resources .............................................................................................................. 305

Figure 6-1 Langmuir Isotherm.............................................................................................................................................................................. 314

Figure 6-2 Effect of PL on shape of Langmuir Isotherm ....................................................................................................................................... 314

Figure 6-3 Effect of Matrix Shrinkage in Dry Coals............................................................................................................................................. 324

Figure 6-4 Effect of Matrix Shrinkage in Wet Coals ............................................................................................................................................ 324

Figure 6-5 Integration of Estimation Methods over Project Life Cycle ................................................................................................................ 346

Table 6-2 Delineation or Step-out Wells............................................................................................................................................................... 347

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Table 6-3 Equivalent CBM Naming ..................................................................................................................................................................... 356

Figure 6-6 Coal Deposits in Canada ..................................................................................................................................................................... 357

Figure 6-7 Coal Trends in Alberta ........................................................................................................................................................................ 359

Figure 6-8 Alberta CBM Gas Production and Producing Wells ........................................................................................................................... 360

Figure 7-1 Illustrates the relation between these and other terms in the evaluation process. ................................................................................ 367

Table 7-1 Bitumen Well Density requirements ..................................................................................................................................................... 369

Table 7-2 Typical Resource classification criteria ................................................................................................................................................ 371

Table 7-3 TV:BIP outcomes for various combinations of ore and waste thicknesses typically found within the study area, at 11.5 percent ore grade

(courtesy of McDaniel & Associates). ................................................................................................................................................................... 380

Figure 7-3: Typical process flowchart for the geological and volumetric analysis of an in-situ oil sands evaluation (courtesy of McDaniel &

Associates). ........................................................................................................................................................................................................... 386

Figure 7-4 Typical geological and reservoir data gathering timeline for a potential in-situ project (courtesy of McDaniel & Associates). .......... 387

Table 7-3 Typical SAGD and CSS Reservoir Characteristics ............................................................................................................................... 393

Figure 7-5: CSS Recovery Prediction (courtesy of Sproule Associates). ............................................................................................................. 396

Figure 7-6 Map showing methodology used in the determination of areal exploitation factor, one of five components in the determination of overall

recovery factor for a SAGD project. (Courtesy of McDaniel & Associates). ........................................................................................................ 404

Figure 7-8 Schematic showing two reservoirs and the steam chamber geometry within each, as defined by a common theta. The top reservoir is 15

metres thick and the bottom reservoir is 30 metres thick. The steam chamber geometry factor is considerably higher in the thicker reservoir, meaning

a much larger proportion of the thicker reservoir will be effectively depleted (courtesy of McDaniel & Associates). .......................................... 407

Figure 7-9 Horizontal well placement in a reservoir with many different types of reservoir heterogeneity. ......................................................... 408

Figure 7-10 Simplified view of the effect of a mid-zone shale on conformity of the steam chamber from the producing well pair (courtesy of

McDaniel & Associates). ...................................................................................................................................................................................... 408

Figure 7-11 Example of type wells for a SAGD evaluation (courtesy of McDaniel & Associates). ..................................................................... 411

Table 7-5 Example Netback Calculation .............................................................................................................................................................. 419

Figure 7-12 Bitumen occurrences in Alberta. Source: AER ST98-2016 ............................................................................................................... 423

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Preface

I am privileged to have chaired the committee charged with updating the Canadian Oil and Gas Evaluation

Handbook (COGEH). This update merges the three prior volumes of the Handbook and provides users with

a consolidation of the current “best practices” to use for the evaluation of oil and gas Reserves and

Resources.

For more than half a century the Canadian oil and gas industry has been using discounted cash flow as a

basis for determining the value of oil and gas Reserves. Reserves were determined using various definitions

prepared and adopted by oil and gas companies, financial agencies, securities commissions, and

government departments. Since the 1960s, Canadian public oil and gas companies were required when

reporting Reserves to adhere to the definitions specified in National Policy No. 2-B. Canadian companies

reporting Reserves in the U.S. were required to adhere to the definitions of the Securities Exchange

Commission. These definitions served well but were short on detailed guidelines for interpreting the

definitions. Although the discounted cash flow method of evaluating the Reserves was widely used and

accepted, very few evaluation guidelines were in place to provide standards for oil and gas evaluations.

In 1998 the Alberta Securities Commission (ASC) in concert with the Ontario Securities Commission and

other Canadian securities commissions (the Canadian Securities Administrators, or CSA) decided to create

an oil and gas task force to recommend changes to the reporting requirements of Canadian public oil and

gas companies. As part of this process, the task force addressed whether the newly proposed Canadian

Institute of Mining, Metallurgy & Petroleum (CIM) (Petroleum Society) Reserves definitions should be

adopted. These CIM (Petroleum Society) definitions subsequently formed part of National Instrument 51-

101 Standards of Disclosure for Oil and Gas Activities (NI 51-101), prepared by the ASC and CSA and

enacted into legislation in September 2003.

The Society of Petroleum Evaluation Engineers published the first volume of the COGEH in June 2002 to

provide Reserves definitions, evaluation practices and procedures and a set of standards for preparing

evaluations in Canada. The ASC and CSA have adopted these standards and they form part of NI 51-101.

Volume 2 was published in November 2005. This volume contained detailed guidelines for estimating and

classifying oil and gas Reserves and Resources. The second edition of Volume 1 was published in

September 2007 and contained revisions that ensured Volumes 1 and 2 were consistent, and it also reflected

changes prompted by industry feedback after several years of Reserves evaluator use.

Volume 3 was published in the continuing effort to provide Reserves evaluators with consistent, up to date

standards of evaluation procedures in the areas of coalbed methane (CBM), International Properties, and

Bitumen and SAGD Reserves and Resources.

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In 2014, an addendum to Volume 2 was published, entitled Resources Other Than Reserves, following the

framework setup in the Petroleum Resource Management System (PRMS). Although the COGEH is

generally applicable to all Resources, previous guidance had focused on Reserves. The guidance provided

in the addendum addressed other Resource Classes (referred to as “Resources Other Than Reserves”

(ROTR)) and progresses from the estimation of Petroleum Initially-In-Place, through classification as

discovered/undiscovered, identification and characterization of recovery technologies and projects,

estimation and the economic status of recoverable volumes and description of contingencies and project

maturity.

Over time, and with the introduction of the ROTR section of Volume 2, users of the Handbook identified

some inconsistencies and redundancies between the three COGEH volumes. Also, new techniques for

developing oil and gas Resources have become the norm and because of the new development techniques,

new methodologies have been developed for evaluating Resources and Reserves. Furthermore, the once

stable regulatory regimes (mainly Crown royalties) have become much more complicated and have

undergone “modernization” in an effort by the Crown to capture their “fair share” of oil and gas revenues.

This current edition is an effort to address the inconsistencies, and to consolidate and restructure the

materials to reduce redundancies. The Handbook has been digitized to take advantage of the ability to

quickly search portions of the document. This updated version of the Handbook makes use of hyperlinks

throughout the document to point readers to up-to-date references on a variety of topics, including but not

limited to: royalty regimes, decline curve analysis techniques and the best practices for empirical type well

forecasting. The Handbook is being offered as a subscription to ensure users of the Handbook will be kept

up to date when corrections and/or updates are made, or new material is added.

Every effort has been made to provide the users of this Handbook with a summary of the “best practices”

to use for evaluating oil and gas Resources and Reserves. The Handbook will continue to be supported by

the Calgary Chapter of the Society of Petroleum Evaluation Engineers (SPEE Calgary), who will ensure

the Handbook is kept “evergreen”. The authors of this document request the users provide SPEE Calgary

Chapter with real-time feedback through the link provided on the subscription page should they encounter

any issues with the Handbook.

In October, 2003 SPEE Calgary Chapter adopted the following official position regarding the use of the

Handbook for purposes of preparing oil and gas Reserves evaluations in Canada and that official position

continues:

1. The Handbook is, by any reasonable measure, the single most comprehensive set of technical

standards available dealing with oil and gas Reserves evaluation practice; and

2. SPEE Calgary Chapter expects all Canadian companies, whether public or private, will use the

standards and guidelines set out in the Handbook when preparing, reporting, and disclosing their

oil and gas Reserves evaluation results.

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Furthermore, COGEH provides a standard other groups such as governments, transmission companies,

energy purchasers and financial users, just to name a few, can use in their business models.

Regulatory or legislative rules or guidelines, including specific requirements for reporting in jurisdictions

outside of Canada, may permit or require deviation from the evaluation guidelines set out in the Handbook.

In all other instances, SPEE Calgary Chapter expects that oil and gas Reserve and Resources evaluations

for public disclosure in Canada will adhere to standards and guidelines in COGEH. Further, it is emphasized

the Handbook should be used and considered by evaluators in its entirety and it is neither appropriate nor

acceptable for evaluators to use or exclude portions of the guidelines on a selective basis unless they can

provide valid, technically compelling reasons for doing so.

If evaluators deviate from the Handbook in preparing a Reserves and Resources evaluation intended for

public disclosure in Canada, it is further expected they will disclose this fact in writing within their

evaluation report, together with an explanation for the deviation.

I trust the COGEH will continue to be a useful standard for practicing evaluators and other parties. It is my

hope that it will continue to improve consistency to the evaluation of oil and gas Reserves and Resources

across the industry.

Douglas M Wright, P.Eng., MBA

Chairman COGEH Update Committee, SPEE (Calgary Chapter)

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Acknowledgements

These guidelines were prepared by numerous committees and sub-committees of the SPEE Calgary Chapter

and other industry professionals. This has involved countless volunteer hours of effort on the part of many

experienced, dedicated and determined individuals over the last two years. This effort built on the

substantial amount of work performed on COGEH Volumes 1 through 3 and the ROTR Guidelines. Without

the foundation provided by the prior editions, this undertaking would have been much more difficult. Many

hours of discussion and debate were held at the committee and subcommittee level covering a wide range

of topics. The overarching goal of this update is to provide a Handbook of the current “best practices” to

use in the evaluation of oil and gas Reserves and Resources, within a single manual. The committee

members also recognize that as both computing technologies advance and development techniques evolve,

there is a need to leave room within the Handbook to allow for future updates.

I would like to thank the oversight committee for their dedication to this project. They are as follows:

• Jodi Anhorn, P. Eng

• David Elliott. P. Geol

• Floyd Williams, P. Eng

• Nora Stewart, P. Eng

• Keith Braaten, P. Eng

• Robert Warholm, P. Eng

• Claudio Virues, P. Eng

• Peter Joziasse, P. Eng

• Mike Verney, P. Eng

• Sandeep Solanki, P. Eng

Additionally, I would like to recognize the following individuals who contributed their time and energy to

the subcommittees:

• Phil Welch, P. Eng

• Dave Perrott, P. Eng

• Kevin Hanson, P. Eng

• Richard Leslie, P. Eng

• Brian Hamm, P. Eng

• Jim Gouveia, P. Eng

• Lester Berezowski, P. Eng

• Jamil Badran, P. Eng

• Khani Ghaffari, P. Eng

• Andi Polanski, P. Eng

• Jim Jenkins, P. Eng

• Jason Pacholko, P. Eng

• Shannon Scott, P. Eng

• Dave Haugen, P. Eng

• Blair Best, P. Eng

• Wes Feik, P. Eng

• Jared Wynveen, P. Eng

• Tim Smith, P. Eng

• Chad Lemke, P. Eng

• Tyler Schloser, P. Eng

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Furthermore, I would like to thank the following individuals for their time and energy to review all or parts

of the compiled document as submitted by the subcommittees.

• Dave Perrot, P. Eng • Harry Helwerda, P. Eng

• Rod Sidle, PE

• Gary Gozenbach, PE

• Craig Burns, P. Geol

• Randy Freeborn, P. Eng

• Keith Macleod, P. Eng

I would also like to thank the many other industry evaluation professionals and users of COGEH for their

support and feedback over the years. Their continued support is necessary to ensure COGEH remains an

industry standard of evaluation practice.

Finally, I am grateful to Gale Dunphy who took on the monumental task of professional editor for the 2018

COGEH update. Ms. Dunphy has helped to dissect the often-rambling sentences, as written by engineers,

and to help create a well-written Handbook that everyone involved should be proud of.

To all, thank you for your time and a job well done.

Sincerely,

Douglas M Wright, P. Eng, MBA

Chairman, COGEH 2018 Update Committee

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1 INTRODUCTION AND DEFINITIONS

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INTRODUCTION

ABOUT THIS HANDBOOK

The Canadian Oil and Gas Evaluation Handbook (COGEH) has been prepared by the Calgary Chapter of

the Society of Petroleum Evaluation Engineers (SPEE Calgary).

Evaluations of oil and gas Reserves and Resources are carried out to provide information for a variety of

purposes. The intent of COGEH is to provide good practice standards to be used in such evaluations and to

ensure consistency in the application of evaluation procedures, and informative Resource reporting. The

focus of this update remains on the Recoverable Resource Classes (Reserves, Contingent Resource Class,

Prospective Resources), but estimates of in-place volumes are also addressed.

COGEH provides good practice guidelines that are generally applicable to all oil and gas assessments. An

oil and gas Resource assessment that is carried out to the standard of COGEH, must fully conform to the

COGEH guidelines. Although basic good practice should always be followed, there may be situations (e.g.,

regulatory reporting requirements, contract provisions) for which some deviation from their strict

application would be appropriate. When this is the case, if COGEH is cited as the standard, there must be

clear explanation of any deviation.

Although parts of this handbook are written in the context of Alberta and Canada, the same principles and

standards generally apply to evaluations carried out on properties in other countries.

HISTORY

The first volume of COGEH, Reserves Definitions and Evaluation Practices and Procedures, published in

June 2002, was prepared by the Standing Committee on Reserves Evaluation of SPEE Calgary and the

Standing Committee on Reserves Definitions of the Canadian Institute of Mining, Metallurgy & Petroleum

(CIM) (Petroleum Society). The SPEE Calgary prepared subsequent volumes and updates. The Canadian

Securities Administrators (CSA) National Instrument 51-101, “Standards of Disclosure for Oil and Gas

Activities” (NI 51-101) was implemented in September 2003 and referred to COGEH as the Resource

evaluation standard to be followed in Canada and has also been recognized as a standard by regulators in

other countries. Provincial professional associations, including the Association of Professional Engineers

and Geoscientists of Alberta (APEGA), have recognized COGEH as a professional practice standard.

The SPEE Calgary published a second edition of COGEH Volume 1 in 2007. Volume 2, Detailed

Guidelines for the Estimation and Classification of Oil and Gas Reserves and Resources was published in

2005, and in 2014, Detailed Guidance on Resources Other Than Reserves (ROTR) was included. Volume

3 was published in 2007, and guidelines on coalbed methane and sections on international properties and

bitumen were subsequently added.

CURRENT UPDATE

Significant changes since the original publication of COGEH, notably an increase in unconventional

resource activity and the addition of new guidelines, has introduced inconsistencies. This major revision of

the handbook includes:

• digital publication, making it easier for users to search and for the SPEE Calgary to maintain.

• removal of inconsistent and redundant material.

• guidelines on Reserves with added guidelines on ROTR.

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