Aggregating Reserves and Resources for Portfolio Management
Authors: Etherington John R. , Hunt Elizabeth J. , Adewusi Adebowale 
Published: December 2007

Exploration and Production firms implementing corporate-wide portfolio management require a rigorous volume classification system and a consistent technique for volume aggregation and category transfers that incorporate associated risk and uncertainty.

The SPE approved classification of Reserves, Contingent Resources, and Prospective Resources is the basis of volume accounting. Integrating stochastic and deterministic estimates generate average confidence factors for Proved, Probable, and Possible volumes to be used in aggregation.

Estimated Ultimate Recoverable (EUR) interpretations are the expected mean volume that will be recovered from a property by a specified development program with an associated investment and production schedule. Volumes are transferred from "risked or confidence-discounted" Probable and Possible to Proved according to a drilling schedule and results of re-interpretation from new technical data. Transfers from Proved Undeveloped to Proved Developed reserves require facility installations.

Contingent Resource estimates utilize a Chance of Commerciality (Pct) to comparatively quantify commercial risk. Prospective Resources in untested prospects have an associated Chance of Geological Success (Pg). Potential future acquisitions of both production and exploration assets are modified by a Probability of Capture (Pcp).

Thus for a given capital investment schedule, the system can compute annual projections of production, remaining reserves and resources by certainty class, and a total remaining EUR that aggregates volumes discounted for technical certainty, commercial certainty, discovery risk, and acquisition probability. Moreover, the aggregated volumes have an associated production profile that can be combined with product price and operating expense forecasts to generate cash flows for financial performance and asset value assessment.

Introduction

Oil and gas companies are increasingly adopting portfolio management applications to support their decision making process with the goal of improving financial performance. These companies are also re-developing their resource database and reporting systems to better track historical performance and fully define their current hydrocarbon asset base. Ultimately the two systems will merge into a single suite of databases and applications. In such a merged system, estimates of remaining recoverable for each project would have an associated production profile and cash flow schedule. Analysis of these future cash flows yield financial metrics such as Net Present Value (NPV).

The merged system can then be interrogated in three reporting modes:- report current asset volumes with associated value assuming full funding- project current asset value under specific funding scenarios- project portfolio results under alternative scenarios including acquisitions and dispositions.

If approached from the resource database perspective, reports would be generated for the current and each future year listing volume and value estimates by resource class. In addition, analysis would include the typical reconciliation reports of annual revisions and additions. In order to facilitate this type of system, a consistent logical process model of hydrocarbon resource evaluation is required.

This paper examines several underlying issues around resource classification, the treatment of chance, risk and uncertainty, and the synchronization of volume and value analyses that may impact the logical model. Both deterministic and probabilistic approaches are considered.