Amplitude Energy Limited · ASX:AEL
Amplitude Energy — Cooper Energy — Good Oil Conference 2009
35 slides from Amplitude Energy's conference presentation, Sep 12, 2009
Slide 1: Reserves Classification
Reserves Classification The truth, the whole truth… Mike Scott BSc., MEng. (Petroleum Engineering), SPE, AICD © Mike Scott Good Oil Conference 2009 1
Slide 2: Disclaimer, Competent Person Statement, Apology
Disclaimer This presentation is presented by and reflects the opinions of Mr Michael Scott. Mr Michael Scott is the Managing Director of Cooper Energy and this presentation does not necessarily reflect the opinions of Cooper Energy. Competent Person Statement This presentation has been prepared by M
Slide 3: Presentation Overview
Presentation Overview Foundations Australian Available Legal (using a Standards R Requirements i generic model) Challenges SPE PRMS And Summary Errors Backup (for home reading (presentation will be posted on Cooper Energy website)) “Objective: try to give everybody the same veneer of understanding –
Slide 4: Foundations
Foundations © Mike Scott Good Oil Conference 2009 4
Slide 5: Recoverable Hydrocarbons Estimates – why required?
Recoverable Hydrocarbons Estimates – why required? • An oil company generates cash by selling hydrocarbons from projects. • Cash to be generated in the future for each project is estimated by making forecasts of expected revenue (production rates x product prices), expenditures (capital and operatin
Slide 6: Recoverable Hydrocarbon Model
Recoverable Hydrocarbon Model Hydrocarbons Initially In Place (Oil or gas that exists underground) Ultimate Recovery Unrecoverable Hydrocarbons (Oil or gas that comes to the surface) (Oil or gas that stays underground) Recoverable Production Losses Hydrocarbons This is sold ‐ This is This is This is
Slide 7: Maturity of Recoverable Hydrocarbons
Maturity of Recoverable Hydrocarbons Secure Explore Appraise Define Design Construct Produce Sell L d Lead Discovery Project Final Project Investment Investment Startup Decision Decision Prospect “Pending” “Undeveloped” “Developed” Under Evaluation Volumes $ Under Recycle Design Potential for R Unde
Slide 8: Uncertainty of Recoverable Hydrocarbons
Uncertainty of Recoverable Hydrocarbons Explore Appraise Define Design Construct Produce bons High Estimate (P10) No uncertainty Hydrocarb nty Range exists when the facility is shut- Large uncertainty Range of uncertainty down at end of when undiscovered in recoverable field life Recoverable H hydro
Slide 9: What is the Statistical Definition of P90, P50, P10 and Mean?
What is the Statistical Definition of P90, P50, P10 and Mean? • P90, P50 and P10 are the CUMULATIVE PROBABILITY of the estimates. • Example: P90 = 5 million barrels of oil means that “in the probabilistic range of outcomes estimated, 90% of the estimates are greater than 5 million barrels.”. • IT IS
Slide 10: Combining Maturity and Uncertainty into a Simple Matrix
Combining Maturity and Uncertainty into a Simple Matrix Uncertainty P90 P50 P10 Description (smallest number, (medium number and (largest number, 90% cum. prob.) 50% cum. prob.) 10% cum. prob.) Although there is a small amount of uncertainty in production volumes this is typically Produced Products
Slide 11: Some Common Oil and Gas Reporting Standards
Some Common Oil and Gas Reporting Standards • US: Security and Exchange Commission (SEC 1978+) Well conformable - a true “proven” proven basis • US: Society of Petroleum Engineers PRMS (SPE PRMS 2007) Updated in 2007 as probabilistic system • UK: AIM Rules Notice 16 Guidance for Oil and Gas Leverage
Slide 12: Australian Legal Requirements
Australian Legal Requirements • ASX Listing Rules Chapter 5: Additional reporting on mining and exploration activities ti iti • 5.11-5.13 Person compiling information about hydrocarbons (competence) • 5.15-5.17 Hydrocarbon reports (not a classification guideline) • ASX Listing Rules Chapter 3: Conti
Slide 13: SPE PRMS – Resources Classification Framework
SPE PRMS – Resources Classification Framework These two columns are a little bit confusing – just ignore them. P90 P50 P10 90% cum. 50% cum. 10% cum. prob. prob. prob. (small (middle (large Production (Produced) number) number) number) ercial Producing y On Production Developed 3P Comme 2P Reserves
Slide 14: Some Key Rules if Using SPE PRMS
Some Key Rules if Using SPE PRMS • If you have h nott yett discovered di d an area (i.e. (i an exploration l ti prospect) t) th then th the recoverable hydrocarbon estimates can only be PROSPECTIVE RESOURCES – the recoverable hydrocarbon estimates are not RESERVES or CONTINGENT RESOURCES. • If you h
Slide 15: Challenges and Errors
Challenges and Errors 15
Slide 16: Some Subtleties in SPE Reserves Definitions
Some Subtleties in SPE Reserves Definitions PROVED RESERVES 2P RESERVES P90 estimate of Developed Producing Developed Producing. PLUS Developed Non-Producing PLUS Undeveloped Approved for development OR PLUS Undeveloped Justified for development. Undeveloped and Justified for OR development Single d
Slide 17: Can a company mature 3P to 2P to 1P?
Can a company mature 3P to 2P to 1P? • Not if you are using probabilistic methodology SPE PRMS. • You can mature recoverable hydrocarbons up through the categories and the uncertainty should reduce as a result but it is impossible to move recoverable bl hhydrocarbons d b ffrom 3P tto 2P tto 1P 1P. “
Slide 18: “My in-place reserves are…”
“My in-place reserves are…” • You either have in-place in place estimates or recoverable estimates • In-place estimates cannot be referred to as RESERVES • Saying S i “i “in-place l reserves”” when h you mean “i “in-place l estimates” ti t ” reveals l you as a non-qualified person • However,, report
Slide 19: “Our Mean estimates are…”
“Our Mean estimates are…” • Companies may report MEAN estimates because it is usually the big number (equal to or bigger than P50 but smaller than P10 - but the confidence level of the MEAN estimate is usually unreported) • Companies should use P50 or P90-P50-P10 or P90-P50-P10-Mean • Let investors
Slide 20: What do investors need to ask?
What do investors need to ask? • What is the standard that the company is using. using • If a company states SPE “1P”, “2P” or “3P” ask what is the developed producing, the developed non-producing and the undeveloped (approved for development and justified for development split) split. • If a compan
Slide 21: Summary
Summary © Mike Scott Good Oil Conference 2009 21
Slide 22: Summary
Summary • Reserve classification categories and terminology only pertain to the standard that is being used. • A company should chose a standard that best suits their circumstances but may b d be driven i b by llaw tto use another th standard t d d (i.e. (i SEC or NI-101) NI 101) • Companies must re
Slide 23: And in closing…
And in closing… “A A gold mine is a hole in the ground with a liar on top.” Att ib t d to Attributed t Mark M k Twain T i “Ethical estimating, classification and reporting p g of recoverable hydrocarbons y all go hand in hand – get yourself a good petroleum-reservoir engineer. engineer ” Mike Scott
Slide 24: Backup
Backup 24
Slide 25: Chance of Success Versus Estimate Uncertainty?
Chance of Success Versus Estimate Uncertainty? Exploration p Well Chance of success 80% Chance of success 20% Dry hole Uncertainty in discovered = zero recoverable + recoverable estimate irrevocable loss of cash P90-P50-P10 “Exploration success gets you onto the uncertainty range.” 25
Slide 26: Proposed Cleaned Up Classification Framework
Proposed Cleaned Up Classification Framework P90 P50 P10 90% 50% 10% confidence confidence confidence (small (middle (large P d ti Production (Produced) (P d d) number) b ) number) b ) number) b ) Producing On Production Developed 3P Non-Producing 2P Proved Reserves 1P Proved + Discoverred Proved +
Slide 27: Some Subtleties in SPE Reserves Definitions
Some Subtleties in SPE Reserves Definitions • 2P means P50 estimate ti t off Developed D l d Producing P d i PLUS Developed D l d Non- N Producing PLUS Undeveloped Approved for development PLUS Undeveloped Justified for development. • 2C means P50 estimate of Development Pending PLUS Development unc
Slide 28: How do we handle Deterministic Evaluations in SPE?
How do we handle Deterministic Evaluations in SPE? • “Deterministic” unfortunately has two meanings: 1 Manual 1. M l estimate ti t off low-medium-high l di hi h ((on a non-probabilistic b bili ti bbasis) i ) 2. Single “best” estimate • Manual estimate of low-medium-high g has a similar output p to p
Slide 29: Why is there Uncertainty in Hydrocarbon Estimates?
Why is there Uncertainty in Hydrocarbon Estimates? • A well in a reservoir is typically only 8 ½” wide. From this we take a limited amountt off measurements t andd then th tryt to t infer i f what h t a field fi ld off say 10 km k x 5 km k contains. • This uncertaintyy in the parameter p measurement
Slide 30: Normal Distribution f(x,0,1)
Normal Distribution f(x,0,1) f(x) ~ 0.4 f(x) ~ 0.18 ‐1.28σ 0σ (P90) (P50) 30
Slide 31: Upper Cumulative Distribution Q(x,0,1)
Upper Cumulative Distribution Q(x,0,1) Q(x) = 0.9 Q(x) = 0.5 ‐1.28σ 0σ (P90) (P50) 31
Slide 32: Uncertainty is Captured in Probability Distributions
Uncertainty is Captured in Probability Distributions P90 P50 P10 • The frequency that an estimate • The frequency distribution is occurs is called a frequency transformed into a cumulative distribution distribution. probability curve curve. • In this example a normal • Typically the probability of t
Slide 33: SPE PRMS definition issue
SPE PRMS definition issue • Proved, Probable and Possible are defined as the 90%, 50% and 10% CUMULATIVE PROBABILITY confidence fid llevels. l • SPE definition: “Probable Reserves…are less likely to be recovered than Proved Reserves” – in a frequency distribution this is not true. • In a frequency q
Slide 34: Coal Bed Methane Reserves and Resources
Coal Bed Methane Reserves and Resources • Using conventional oil and gas standards for CBM may not be prudent due to a number of issues. • CBM has a very different technical, risk and economics profile when compared to conventional gas. • CBM should perhaps use “drilled” and “inferred” categories as
Slide 35: Examples of what we have not covered today
Examples of what we have not covered today • How is the chance of success for an exploration, appraisal and development t targets t derived d i d anddhhow ddo we calculated l l t d risked i k d recoverable bl hhydrocarbons. d b • The static and dynamic methods for estimating in-place volumes. • The