Oil and Gas Reserves Reports – Know What You Own

Oil and Gas Reserves Reports – Know What You Own

Well production naturally decreases over time. The remaining reserves refers to the oil and gas not yet produced, at any given date. Remaining oil and gas reserves on a property are calculated from already existing producing wells, with remaining reserves, and undeveloped reserves (wells to be drilled and produced in the future).

Reserves Report for a RBL Loan

A common way to finance the purchase of an oil and gas property is through Reserve Based Lending (RBL). The RBL financing option, is specific to the oil and gas industry. This type of loan is secured by the oil and gas reserves of the asset to be acquired.

 An independent third-party reserves report is needed for the lender to approve and determine the amount and terms of the loan. This report includes, in a specific format, the accurate production and economic forecasts of the existing producing, drilled, and undeveloped properties, as a total and by reserves categories (PDP, PDNP, PUD, PROB, POSS). Lenders apply specific risk factors to each reserves category. For example, an existing producing well will have a lower risk factor than an un-drilled location two miles away from existing production, since the likelihood those reserves being produced is higher. 

Reserves Report for Annual Reporting to the SEC

It is common for companies and investors to analyze the remaining reserves of their assets, and document them. These reserves reports help to define the strength and future of the asset.  Publicly traded oil and gas companies are required to report their reserves annually to the the US Securities and Exchange Commission (SEC).

The SEC defines proven reserves as “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 deterministic or probabilistic methods are used for the estimation.”

How Reserves are Estimated

The SEC rule states that reserves are determined through analysis of geoscience and engineering data. The process begins with building type curves. You can learn more about this process by reading our blog post “Type Curves Affect Oil and Gas Deals” .

Remaining reserves include future well locations called upside wells. Upside wells are grouped into categories by distance from a producing well. These reserve categories are: Proved Undeveloped (PUD), Probable (PROB) and Possible (POSS) reserves. The further a well is from an existing producer, the more heavily the category is risked. Learn more about upsides here

The table below explains how our PetroValues team risks each of these categories for reserves reporting.

Sample Reserves Report

Interested in learning more? Our PetroValues team has created a sample reserves report for reference. 

 

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