Exhibit 15.4




INDEPENDENT LETTER
  THE MISSAN OIL FIELDS IN EASTERN IRAQ
  ESTIMATED PROVED RESERVES AND FINANCIAL DATA, BASED ON SEC RULES
   Prepared for
  CNOOC LIMITED
  As at 31stDecember, 2012
          March, 2013
          GAFFNEY, CLINE & ASSOCIATES (CONSULTANTS) PTE LTD
 
 
 
 
 
 
 
 
 
 This summary letter is based on Gaffney, Cline & Associates’ official report and has been
 provided at the request of CNOOC Limited.
 
 
 
 
 
 
 
 
 CNOOC Limited
Copy No. 1
PS-12-2147
 
  Gaffney, Cline & Associates

(Consultants)  Pte. Ltd.

80 Anson Road

#31-01C Fuji Xerox Towers

Singapore 079907

Telephone:+6562256951



www.gaffney-cline.com
 SAS/SML/YDH/dh/L0088/2013/PS-12-2147
6thMarch, 2013
 
 CNOOC Limited
 No. 25, Chaoyangmenbei Dajie
 Dongcheng District
 Beijing 100010, P.R. China
 
 
 Gentlemen:
 
 INDEPENDENT LETTER
 
 THE MISSAN OIL FIELDS IN EASTERN IRAQ
 
 ESTIMATED PROVED RESERVES AND FINANCIAL DATA, BASED ON SEC RULES
 As at 31st December, 2012
 
 At the request of CNOOC Limited, Gaffney, Cline & Associates (GCA) has prepared an independent estimate of the proved reserves and financial data attributable to certain participating interests owned by CNOOC Limited as at 31stDecember, 2012. The reserves and income data were estimated based on Rules of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released 14thJanuary, 2009 in the Federal Register, including all references to Regulation S-X and Regulation S-K (SEC regulations). GCA’s independent study, completed on 6thMarch, 2013 and summarized herein, was prepared for public disclosure by CNOOC Limited in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC Rules. In GCA’s opinion, the assumptions, data, methods, and procedures used in the preparation of this report are appropriate for such purpose and have been carried out in line with the SEC Oil and Gas Reserves Definitions attached hereto as an Attachment.
 
 The subject properties of the Missan Oil Fields (Missan) are located in eastern Iraq 350 km southeast of Baghdad. Based on information provided by CNOOC Limited, the Proved reserves estimates for properties evaluated by GCA for this report represent approximately 1.1 percent of CNOOC Limited’s total net proved reserves as at 31stDecember, 2012.
 
 CNOOC have signed a 20-year Technical Service Contract (TSC) with the Missan Oil Company of The Iraqi Ministry of Oil (MOC) for the rehabilitation of improved production and enhanced recovery of petroleum from Missan. CNOOC is the Operator of and holds a 63.75% participating interest in the project.
 
 The oil reserves and financial data reported herein were estimated on the basis of SEC Rules. GCA has classified as Reserves those hydrocarbon volumes that would be economically recoverable as a result of implementing the Rehabilitation Plan only.
 
 
 
 
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CNOOC Limited
 In line with the foregoing, the statement of reserves, presented herein, is based on a program that is expected to be superseded by the redevelopment activities proposed under the Enhanced Redevelopment Period (ERP) to be submitted by 20thDecember, 2013. As such, the volumes actually recovered under the enlarged plan are expected to be significantly greater than those presented. However, should the ERP not be approved, it is possible that the CNOOC would be seen as in default of the contract and there could be an early termination and a consequential reduction in reserves.
 
 Under the terms of the TSC, the Contractor is entitled to use any quantity of Associated Gas from the oil reservoirs necessary for Petroleum Operations and for power generation. However, all Associated Gas that is not used in Petroleum Operations or for power generation “shall be delivered unprocessed to MOC”. Thus, the contractor has no entitlement to any gas reserves.
 
 The study was based on an audit of CNOOC’s interpretations of the existing data. This audit examination was based on information and data provided by CNOOC to GCA on or before 31stDecember, 2012, and included such tests, procedures and adjustments as were considered necessary. All questions that arose during the course of the audit process were resolved to our satisfaction.
 
 Economic models were constructed based on terms of the TSC as provided by CNOOC, in order to calculate CNOOC’s Net Entitlement volumes, which are made up of CNOOC’s share of Service Fees (Petroleum Cost Recovery and Remuneration Fees) plus Supplementary Fees, converted to volumetric equivalents. The economic tests for the reserve volumes as at 31stDecember, 2012 were based on a prior twelve-month first-day-of-the-month average reference price for UK North Sea Brent crude of US$111.21/barrel, corrected for location and quality to an average wellhead price of US$106.20/barrel. No price escalation, or cost inflation, has been included in the evaluation.
 
 Future capital costs were derived from development plans prepared by CNOOC for the field. Recent historical operating expense data were utilized as the basis for operating cost projections. GCA found that CNOOC has projected sufficient capital investments and operating expenses to produce economically the projected volumes recoverable from the development activities planned under the Rehabilitation Plan of the contract.
 
 GCA concludes that the methodologies employed by CNOOC in the derivation of the reserves estimates are appropriate and that the quality of the data relied upon, the depth and thoroughness of the reserves estimation process are adequate.
 
 It should be understood that any evaluation, particularly one involving future improvement developments, may be subject to significant variations over short periods of time, as new information becomes available and perceptions change. In this regard, it is noted again that the reserves estimates included in this report are limited to volumes produced from operations planned under the 3-year Rehabilitation Plan and as such are expected to be superseded by a revised assessment when the redevelopment activities proposed under the ERP have been approved by MOC and implementation of the plan initiated.
 
 The estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks; therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities.
 
 
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CNOOC Limited
 Actual future prices may vary significantly from the prices required by SEC Rules; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of this study are summarized in the following table.
 
 Estimated Net Reserves and Financial Data
 As at 31stDecember, 2012
  ProvedDeveloped
Undeveloped
Total

ProvedProducing
Non-ProducingNetReservesOil/Condensate – MBbl
0
0
38,631.2
38,631.2IncomeData (M$)Future Gross Revenue
$   0
$   0
$  4,201,443.2
$  4,201,443.2Deductions
$   0
$   0
$  4,067,002.4
$  4,067,002.4Future Net Income (FNI)
$   0
$   0
$     134,440.8
$     134,440.8Discounted FNI @ 10%
$   0
$   0
-$       48,264.4
-$       48,264.4
 Liquid hydrocarbons are expressed in thousands of standard (42 gallon) barrels (MBbl). In this report, the revenues, deductions and income data are expressed in thousands of US dollars (M$).
 
 The future gross revenue represents CNOOC Limited’s net entitlement share of Service Fees (Petroleum Cost Recovery plus Remuneration Fees) due under the Technical Service Contract (TSC). Deductions represent CNOOC Limited’s 85% (63.75% of 75% of total project) share of project Capital Expenditure, Operating Expenditure, contractual Supplementary Costs, State partner ‘carry’ and Training Fees. Future Net Income represents CNOOC Limited’s Future Gross Revenue less costs incurred, and on a pre-tax basis, under the terms of the TSC.
 
 It should be clearly noted that the Future Net Income (FNI) of future revenue potential of a petroleum property, such as those discussed in this letter, does not represent a GCA opinion as to the market value of that property, nor any interest in it. In assessing a likely market value, it would be necessary to take into account a number of additional factors including: reserves risk (i.e. that proved reserves may not be realized within the anticipated timeframe for their exploitation); perceptions of economic and sovereign risk; potential upside, such as in this case exploitation of reserves beyond the proved level; other benefits, encumbrances or charges that may pertain to a particular interest; and the competitive state of the market at the time. GCA has explicitly not taken such factors into account in deriving the reference FNI presented herein.
 
 The results stated in this letter are based on the data set made available by CNOOC Limited including geological, geophysical, petrophysical and engineering data and reports, together with financial data and other information pertaining to the fiscal and contractual terms applicable to its Licenses. GCA has accepted without independent verification, the accuracy and completeness of these data.
 
 GCA has no reason to believe that any material facts have been withheld from it, but does not warrant that its inquiries have revealed all of the matters that a more extensive examination might otherwise disclose. The opinions and statements contained in this report are made in good faith and in the belief that such opinions and statements are representative of prevailing physical and economic circumstances.
 
 
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CNOOC Limited
 This assessment has been conducted within the context of GCA’s understanding of the effects of petroleum legislation and other regulations that currently apply to these properties. However, GCA is not in a position to attest to property title or rights, conditions of these rights including environmental and abandonment obligations, and any necessary licenses and consents including planning permission, financial interest relationships or encumbrances thereon for any part of the appraised properties.
 
 The opinions expressed herein represent GCA’s informed judgment based upon accepted standards of professional investigation in its evaluation of the issues, the data that has been made available and the company’s professional experience in the consideration of these matters but subject to the generally accepted uncertainties associated with the interpretation of geoscience and engineering data. Any evaluation may be subject to significant variation over time as new information becomes available or perceptions of market conditions change.
 
 In carrying out this study, GCA is not aware that any conflict of interest has existed. GCA is as an independent energy consultancy specializing in petroleum reservoir evaluation and economic analysis. The firm’s management and employees have no direct or indirect interest holding in CNOOC Limited. GCA’s remuneration was not in any way contingent on the contents of this report. In the preparation of this report, GCA has maintained, and continues to maintain, a strict consultant-client relationship with CNOOC Limited. The management and employees of GCA have been, and continue to be, independent of CNOOC Limited in the services they provide to the company including the provision of the opinions expressed in this report. Furthermore, the management and employees of GCA have no interest in any assets or share capital of CNOOC Limited or in the promotion of CNOOC Limited.
 
 The results included herein were prepared in accordance with the disclosure requirements set forth in the SEC Rules and intended for public disclosure as an exhibit in filings made with the SEC by CNOOC Limited.
 
 This letter should not be used for purposes other than those for which it is intended. This letter should not be reproduced, either in whole or part, without the written permission of GCA. CNOOC Limited will obtain GCA’s prior written or email approval for the use with third parties and context of the use with third parties of any results, statements or opinions expressed by GCA to CNOOC Limited, which are attributed to GCA. Such requirement of approval shall include, but not be confined to, statements or references in documents of a public or semi-public nature such as loan agreements, prospectuses, reserve statements, websites, press releases, etc.
 
 We hereby consent to the references to our name and our third party report as well as the filing of our third party report as an exhibit to CNOOC Limited’s annual report on Form 20-F for the fiscal year ended 31stDecember, 2012.
 
 Yours faithfully,
 GAFFNEY, CLINE & ASSOCIATES (CONSULTANTS) PTE LTD
 
 
 
 /s/ Stephen A. Sakowski
 Stephen A. Sakowski
 Regional QA Director – Asia Pacific
 
 Attachments:
 I.
Technical Qualifications
 II.
SEC Reserves Definitions
 
 
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 Attachment I
 
 Technical Qualifications
     
 
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 TECHNICAL QUALIFICATIONS
 
 GCA is an independent international energy advisory group of 50 years’ standing, whose expertise includes petroleum reservoir evaluation and economic analysis.
 
 The report is based on information compiled by professional staff members who are full time employees of GCA. Staff who participated in the compilation of this report mainly include Mr. Brian Rhodes, Mr. Stephen A. Sakowski, Mr. Stephen M. Lane, Mr. Rawdon Seager, Dr. Hu Yundong, Mr. Gary William Holmes, Mr. Raymond Tsuen, Mr. Paul McGhee, Ms. Maria Soto Abreu, and Mr. Florent Rousset. All hold degrees in geoscience, petroleum engineering or related discipline.
 
 Mr. Rhodes holds a B.Sc (Hons) Geology, is a member of the Energy Institute, the Petroleum Exploration Society of Great Britain, the Society of Petroleum Engineers and the European Association of Geoscientists and Engineers, and has more than 38 years industry experience.
 
 Mr. Sakowski holds a M.Eng. Mechanical Engineering and a Master’s Certificate Project Management, is a member of the Society of Petroleum Engineers and the Association of Professional Engineers, Geologists and Geophysicists of Alberta, and has more than 35 years international experience in the oil and gas industry.
 
 Mr. Lane holds a BSc (Hons) in Geology, is a member of the Society of Petroleum Engineers and is a very experienced Geoscientist and Petrophysicist with over 30 years’ background in providing geological and petrophysical expertise to clients worldwide. He has particular involvement as lead petrophysicist/geologist and Project Manager in many oil and gas reserve certifications both for project finance and for SEC reporting purposes, frequent involvement in the valuation of E&P assets for acquisition and divestment purposes and production of public documents such as Competent Person’s Reports.
 
 Mr. Seager holds a BSc. (Hons) in Physics and a MSc. (Distinction) in Petroleum Reservoir Engineering, is a member of Society of Petroleum Engineers (Chairman of SPE Oil and Gas Reserves Committee), Society of Petroleum Evaluation Engineers and American Association of Petroleum Geologists, is a member of the Energy Institute, UK, Chartered Petroleum Engineer, UK and European Engineer, registered with FEANI. He has over 40 years of experience in the international oil and gas arena and has managed numerous field studies, reserve assessments, and asset evaluations. He has made presentations within the industry relating to reserves estimating and reporting issues and has given expert testimony during arbitration hearings.
 
 Dr. Hu holds a PhD in Petroleum Geology, is a member of the Society of Petroleum Engineers and a Registered Mineral Reserve Evaluator of the P.R. China, and has more than 30 years industry experience in China.
 
 Mr. Holmes holds a BSc (Hons) in Geology and Geography, is a member of Society of Petroleum Engineers, Petroleum Exploration Society of Great Britain, South East Asia Petroleum Exploration Society and London Petrophysical Society, and has 30 years international experience in Exploration and Production, with key strengths includes innovative approach to integrated formation evaluation, field studies and operations.
 
 Mr. Tsuen holds a BSc in Mechanical Engineering and a Graduate Diploma in Chemical Engineering, is a member of the Society of Petroleum Engineers, the Association of professional Engineers, Geologists and Geophysicists of Alberta. He is Reservoir Engineer with over 26 years of world-wide experience. Assignments involving working in the areas of reservoir management, pool performance optimization, production forecasts, depletion strategies, property development, reserves determination, simulation, economic evaluations, formation damage studies, PVT fluid characterization, special core analysis and enhanced oil recovery processes.
 
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 Mr. McGhee holds a B.Sc in Chemical Engineering, is a member of the Society of Petroleum Engineers and the Association of International Petroleum Negotiators, and has more than 25 years industry experience, with a background in the fiscal modeling and economic evaluation of numerous petroleum producing nations.
 
 Ms. Soto Abreu holds a BSc in Geophysical Engineering and a MSc in Earth Sciences / Geophysics, is a member of Society of Exploration Geophysicists and European Association of Geoscientists & Engineers.
 
 Mr. Rousset holds a BSc in Mathematics and a MSc in Management, is a member of International Association of Energy Economists and Association of International Petroleum Negotiators.
 
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 Attachment II
 
 SEC Reserve Definitions
       
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 U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)
 MODERNIZATION OF OIL AND GAS REPORTING1
 
 Oil and Gas Reserves Definitions and Reporting
 
 (a)
Definitions
 
 (1) Acquisition of properties.  Costs incurred to purchase, lease or otherwise acquire a property, including costs of lease bonuses and options to purchase or lease properties, the portion of costs applicable to minerals when land including mineral rights is purchased in fee, brokers' fees, recording fees, legal costs, and other costs incurred in acquiring properties.
 
 (2) Analogous reservoir.  Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, an “analogous reservoir” refers to a reservoir that shares the following characteristics with the reservoir of interest:
 
 (i)
Same geological formation (but not necessarily in pressure communication with the reservoir of interest);
 
 (ii)
Same environment of deposition;
 
 (iii)
Similar geological structure; and
 
 (iv)
Same drive mechanism.
 
 Instruction to paragraph (a)(2):  Reservoir properties must, in the aggregate, be no more favorable in the analog than in the reservoir of interest.
 
 (3) Bitumen.  Bitumen, sometimes referred to as natural bitumen, is petroleum in a solid or semi-solid state in natural deposits with a viscosity greater than 10,000 centipoise measured at original temperature in the deposit and atmospheric pressure, on a gas free basis. In its natural state it usually contains sulfur, metals, and other non-hydrocarbons.
 
 (4) Condensate.  Condensate is a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.
 
 (5) Deterministic estimate.  The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data) in the reserves calculation is used in the reserves estimation procedure.
 
 (6) Developed oil and gas reserves.  Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
 
 1Extracted from 17 CFR Parts 210, 211, 229, and 249 [Release Nos. 33-8995; 34-59192; FR-78; File No. S7-15-08] RIN 3235-AK00].
 
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 (i)
Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
 
 (ii)
Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
 
 (7) Development costs.  Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. More specifically, development costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to:
 
 (i)
Gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves.
 
 (ii)
Drill and equip development wells, development-type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly.
 
 (iii)
Acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems.
 
 (iv)
Provide improved recovery systems.
 
 (8) Development project.   A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.
 
 (9) Development well.  A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
 
 (10) Economically producible.  The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. The value of the products that generate revenue shall be determined at the terminal point of oil and gas producing activities as defined in paragraph (a)(16) of this section.
 
 (11) Estimated ultimate recovery (EUR).  Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.
 
 (12) Exploration costs.  Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic
 
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CNOOC Limited  test wells. Exploration costs may be incurred both before acquiring the related property (sometimes referred to in pail as prospecting costs) and after acquiring the property. Principal types of exploration costs, which include depreciation and applicable operating costs of support equipment and facilities and other costs of exploration activities, are:
 
 (i)
Costs of topographical, geographical and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews, and others conducting those studies. Collectively, these are sometimes referred to as geological and geophysical or "G&G" costs.
 
 (ii)
Costs of carrying and retaining undeveloped properties, such as delay rentals, ad valorem taxes on properties, legal costs for title defense, and the maintenance of land and lease records.
 
 (iii)
Dry hole contributions and bottom hole contributions.
 
 (iv)
Costs of drilling and equipping exploratory wells.
 
 (v)
Costs of drilling exploratory-type stratigraphic test wells.
 
 (13)         Exploratorywell.   An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well as those items are defined in this section.
 
 (14)         Extensionwell.   An extension well is a well drilled to extend the limits of a known reservoir.
  (15)         Field.   An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field which are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms "structural feature" and "stratigraphic condition" are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.
 
 (16)         Oilandgasproducingactivities.
  (i)
Oil and gas producing activities include:
  (A)
The search for crude oil, including condensate and natural gas liquids, ornatural gas (“oil and gas”) in their natural states and original locations;
  (B)
The acquisition of property rights or properties for the purpose of further exploration or for the purpose of removing the oil or gas from such properties;
  (C)
The construction, drilling, and production activities necessary to retrieve oil and gas from their natural reservoirs, including the acquisition, construction, installation, and maintenance of field gathering and storage
 
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 systems, such as:
  (1)
Lifting the oil and gas to the surface; and
  (2)
Gathering, treating, and field processing (as in the case of processing gas to extract liquid hydrocarbons); and
  (D)
Extraction of saleable hydrocarbons, in the solid, liquid, or gaseous state, from oil sands, shale, coalbeds, or other nonrenewable natural resources which are intended to be upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction.
  Instruction1toparagraph(a)(16)(i):  The oil and gas production function shall be regarded as ending at a “terminal point”, which is the outlet valve on the lease or field storage tank.   If unusual physical or operational circumstances exist, it may be appropriate to regard the terminal point for the production function as:
  a.
The first point at which oil, gas, or gas liquids, natural or synthetic, are delivered to a main pipeline, a common carrier, a refinery, or a marine terminal; and
  b.
In the case of natural resources that are intended to be upgraded into synthetic oil or gas, if those natural resources are delivered to a purchaser prior to upgrading, the first point at which the natural resources are delivered to a main pipeline, a common carrier, a refinery, a marine terminal, or a facility which upgrades such natural resources into synthetic oil or gas.
  Instruction2toparagraph(a)(16)(i):   For purposes of this paragraph (a)(16), the term saleablehydrocarbons means hydrocarbons that are saleable in the state in which the hydrocarbons are delivered.
 
 (ii)
Oil and gas producing activities do not include:
  (A)
Transporting, refining, or marketing oil and gas;
  (B)
Processing of produced oil, gas or natural resources that can be upgraded into synthetic oil or gas by a registrant that does not have the legal right to produce or a revenue interest in such production;
  (C)
Activities relating to the production of natural resources other than oil, gas, or natural resources from which synthetic oil and gas can be extracted; or
  (D)
Production of geothermal steam.
  (17)          Possiblereserves.   Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.
  (i)
When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves.   When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.
  (ii)
Possible reserves may be assigned to areas of a reservoir adjacent to probable
 
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 reserves where data control and interpretations of available data are progressively less certain.   Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.
 
 (iii)
Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.
  (iv)
The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.
  (v)
Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir.   Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.
  (vi)
Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology.   Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.
 
 (18)         Probablereserves.   Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.
 
 (i)
When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves.   When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.
 
 (ii)
Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion.   Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.
 
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 (iii)
Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.
  (iv)
See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.
 
 (19)         Probabilisticestimate.   The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.
 
 (20)         Productioncosts.
  (i)
Costs  incurred  to  operate  and  maintain  wells  and  related  equipment  and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities, they become part of the cost of oil and gas produced. Examples of production costs (sometimes called lifting costs) are:
  (A)
Costs of labor to operate the wells and related equipment and facilities.
 
 (B)
Repairs and maintenance.
  (C)
Materials, supplies, arid fuel consumed and supplies utilized in operating the wells and related equipment and facilities.
  (D)
Property taxes and insurance applicable to proved properties and wells and related equipment and facilities.
  (E)
Severance taxes.
  (ii)
Some  support  equipment  or facilities  may  serve  two  or  more oil  and  gas producing activities and may also serve transportation, refining, and marketing activities. To the extent that the support equipment and facilities are used in oil and gas producing activities, their depreciation and applicable operating costs become exploration, development or production costs, as appropriate. Depreciation, depletion, and amortization of capitalized acquisition, exploration, and development costs are not production costs but also become part of the cost of oil and gas produced along with production (lifting) costs identified above.
 
 (21)         Provedarea.   The part of a property to which proved reserves have been specifically attributed.
  (22)         Provedoilandgasreserves.   Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether dete rministic or probabilistic methods are used for the estimation.   The project to extract the hydrocarbons
 
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 must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
  (i)
The area of the reservoir considered as proved includes:
  (A)
The area identified by drilling and limited by fluid contacts, if any, and
  (B)
Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
  (ii)
In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
  (iii)
Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
  (iv)
Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
  (A)
Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and
  (B)
The project has been approved for development by all necessary parties and entities, including governmental entities.
  (v)
Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined.   The price shall be the average price during the 12-month period prior to the ending date of the period covered by the   report,   determined   as   an   unweighted   arithmetic   average   of   the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
  (23)         Provedproperties.  Properties with proved reserves.
  (24)         Reasonablecertainty.    If  deterministic  methods  are  used,  reasonable  certainty means a high degree of confidence that the quantities will be recovered.   If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.   A high degree of confidence exists if the
 
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 quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.
 
 (25)      Reliabletechnology.   Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
 
 (26)      Reserves.   Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations.   In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.
  Notetoparagraph(a)(26):   Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible.   Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results).   Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
 
 (27)      Reservoir.  A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
  (28)      Resources.   Resources are quantities of oil and gas estimated to exist in naturally occurring accumulations.   A portion of the resources may be estimated to be recoverable, and another portion may be considered to be unrecoverable.   Resources include both discovered and undiscovered accumulations.
 
 (29)      Servicewell.     A  well  drilled  or  completed  for  the  purpose  of  supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion.
 
 (30)      Stratigraphictestwell.    A  stratigraphic  test  well  is  a  drilling  effort,  geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as “exploratory type” if not drilled in a known area or “development type” if drilled in a known area.
 
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 (31)      Undevelopedoilandgasreserves.   Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
  (i)
Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
  (ii)
Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless   the specific circumstances, justify a longer time.
  (iii)
Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.
  (32)      Unprovedproperties.   Properties with no proved reserves.


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