In-Situ Oil Sands Reserve and Resource Assessments and

DisclosureJanuary 25, 2008

Presented by Dana B. Laustsen, P. Eng.Executive Vice-President

GLJ Petroleum Consultants

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OUTLINE

• Background• Terminology and Definitions

• Reserve and Resource Definitions• Recovery Project based categorization• Commercial Status and Risk

• Changes to Resources Reporting Guidelines• Risk Assessment Checklist• Conclusions

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Background

• NI 51-101 allows disclosure of reserves and resources in Canada

• Historically companies have only reported reserve data, however, tracking of resources is increasing in importance, especially for Oil Sand companies

• Reporting of Resources is not mandatory, but if Resources are disclosed, the Canadian Securities Administrators (CSA) has set out rules that must be followed.

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Background

• The Canadian Oil & Gas Evaluation Handbook (COGEH) outlines standards for reserves and resource evaluation.

• Recent update to the COGE Handbook provides better guidance in distinguishing reserves from resources.

• Guidance in the COGE Handbook is generally in line with the SPE’s Petroleum Resource Management System (PRMS).

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Terminology

• Resources• Petroleum Initially-In-

Place• Recovery Project• Reserves• Prospective Resources• Contingent Resources

• Discovery Status• Commercial Status• Commercial Risk• Economic Status• Uncertainty Categories

SPE Reserves/Resource

ClassificationSystem

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Resources

• Total Resources• All encompassing term meant to represent all petroleum

quantities that originally existed on or within the earth’s crust in naturally occurring accumulations, including discovered and undiscovered (recoverable and unrecoverable) plus quantities already produced

• Vague term frequently misused and misinterpreted• Petroleum Initially-In-Place (PIIP)

• New preferred term to replace Total Resources described in the previous version of the COGE Handbook.

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Recovery Project

• Recovery Project• Concept of a recovery project is fundamental to recovery

of reserves and resources• In order to have reserves or recoverable resources in any

category, a technically feasible recovery project must be defined

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Recoverable Quantities

• Recoverable quantities are then categorized as:• Reserves

• Discovered and commercially recoverable, or

• Contingent Resources• Discovered and potentially recoverable but sub-

commercial, or

• Prospective Resources• Undiscovered and potentially recoverable

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Prospective Resources

• Prospective Resources• Those quantities of petroleum estimated, as of a given

date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

• Prospective resources have both an associated chance of discovery and a chance of development.

• Further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development (low, best and high)

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Discovery Status

• Discovery Status• To be discovered an accumulation must be penetrated by

a well and have evidence of the existence of petroleum• For simple isolated structural accumulations, the

discovery status is fairly straight forward• The discovery status is a little less straight forward in

faulted reservoirs which may or may not be hydraulically isolated with sealing faults

• The discovery status can be very interpretive when dealing with continuous type deposits such as Oil Sands.

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Discovery Status

• Discovery Status• There is no consensus methodology in the industry as

how to distinguish prospective from contingent resources in Oil Sands Deposits

• Many individuals believe that prescribed geographic limits away from well control should be imposed in order to classify a region of a reservoir as discovered (ie contingent)

• This may be useful to allow comparable comparisons of discovered resource numbers, but does not strictly adhere to the recognized definitions.

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Discovery Status

• GLJ’s approach in classifying discovered resources:• Map what is interpreted to be continuous accumulations

penetrated by wellbores• These mapped regions are categorized as discovered PIIP• This methodology means that,

• for marine accumulations which are blanket-type deposits, very large areas can be mapped with little well control

• for channel type deposits, only correlatible channels can be mapped or channels which are likely in hydraulic communication through stacking

• If stacking does not occur, there may be proportionately less resource mapped as contingent than in a marine environment

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Discovery Status

• GLJ’s approach in classifying discovered resources:• In channel environments, GLJ attempts to quantify the

likelihood of additional channels being present in undrilled areas, using the statistical results in drilled areas.

• This statistical “wedge” of additional undiscovered resources is categorized as prospective resources

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Contingent Resources

• Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies.

• These contingencies may include factors such as economic, legal,environmental, political and regulatory matters, or lack of markets.

• It is also appropriate to classify as contingent resources the estimated recoverable quantities associated with a project in the early evaluation stage.

• Further classified in accordance with the level of certainty associated with the estimates (low, best and high), and may also be characterized by the economic status (ie.economic vs sub-economic)

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Contingent Resources -Economics

• A key clarification in the new COGEH edition is the change in the wording from economically recoverable to commerciallyrecoverable.

• It also emphasizes the fact that it is acceptable to classify projects in the early evaluation stage as contingent.

• This eliminates the confusion surrounding the prior definition which implied the main distinguishing difference between a resource and a reserve was that a resource was “uneconomic” to develop and a reserve was “economic” to develop.

• A resource may therefore be either economic or uneconomic to exploit

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Contingent Resources -Technology

• Another key clarification is that recoverable resources can only be assigned if the recovery process uses “established technology” or “technology under development”

• Technology under development refers to technology “developed and verified by testing as feasible for future commercial applications to the subject reservoir”

• Technology “verified by testing” is a grey area of interpretation and may lead to differences between evaluators

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Contingent Resources -Technology

• GLJ’s interpretation of this requirement is that a reservoir process cannot be verified by testing unless;• There is evidence as to what the reservoir properties are,

either through core analyses or log correlations to offset wells

• Successful laboratory or field testing of the process has been undertaken

• Detailed reservoir studies have been undertaken, preferable reservoir simulation

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Contingent Resources -Technology

• Where technology is under development, GLJ believes that the evaluator should adjust the best estimate recovery factor somewhat to account for potential uncertainty in the process

• If the reservoir process does not meet the above guidance, then the resources should be classified in a higher risk category, either as “prospective, high estimate contingent, or unrecoverable”.

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Commerciality

• What criteria determines commerciality in order to reclassify a contingent resource as a reserve?• Economic viability of the related development project• Reasonable expectation that there will be a market for the expected

sales quantities of production required to justify development• Evidence that the necessary production and transportation facilities

are available or can be made available• Evidence that legal, contractual, environmental, governmental, and

other social and economic concerns will allow for the actual implementation of the recovery project being evaluated

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Commerciality

• Reasonable expectation that all required internal and external approvals will be forthcoming. Evidence of this may include items such as signed contracts, budget approvals, and approvals for expenditures, etc

• Evidence to support a reasonable timetable for development. A reasonable time frame for the initiation of development depends on the specific circumstances and varies according to the scope of the project. While five years is recommended as a maximum time framefor classification of a project as commercial, a longer time frame could be applied where, for example, development of economic projects are deferred at the option of the producer for, among other things, market-related reasons or to meet contractual or strategic objectives

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Commerciality

• GLJ’s internal guidelines pertaining to converting Oil Sands Resource bookings to Reserve bookings is as follows;• Regulatory application as a minimum for probable reserves and

regulatory approval for proved. • 40 to 80 acre core-hole density for proved• 80 to 160 acre core-hole density for probable• Project is economic in the respective reserve category• Sufficiently detailed cost estimates have been prepared by qualified

facility engineers• Sufficiently detailed reservoir studies have been conducted• Commercial success of the process has been demonstrated as detailed

in the COGE handbook.

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Reserves

• Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on• Analysis of drilling, geological, geophysical and engineering data• The use of established technology• Specified economic conditions, which are generally accepted as

being reasonable, and shall be disclosed.• Are classified according to degree of certainty associated with the

estimate ( proved, probable or possible)

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Commercial Risk

• A development project needs to be defined in order to assign recoverable resources in any category

• Estimates are made assuming commercial development

• The likelihood a project will achieve commerciality is referred to as “chance of commerciality”

• Different categories and projects will have different chances of commerciality

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Commercial Risk

• Reserves: Must be associated with a project(s) that has demonstrated commercial viability.• Chance of commerciality is effectively 100%

• Contingent Resources: Not all technically feasible projects will be commercial. In early development stages, changes in reservoir delineation, development costs estimates, and other fiscal conditions may result in a project not proceeding.• Chance of commerciality equals the chance of development

• Prospective Resources: Not all exploration projects will result in discoveries.• Chance of commerciality equals chance of success times chance of

development

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Commercial Risk

• Evaluators are not required to quantify the commercial risk components

• Because of the different commercial risk components of reserves vs contingent resources vs prospective resources, NI-51-101 regulations require a discussion of the risks associated with each category.

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Economic Status

• By definition, reserves are economic to develop• Since contingencies other than economics may make a

project “non-commercial”, contingent resources may either be “economic” or “sub-economic”

• Economic test of contingent resources for commerciality is based on the same fiscal conditions as for reserves

• When evaluations are incomplete and it is premature to judge the economic viability of a project, it is acceptable to categorize the economic status of a contingent resource as “undetermined”

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Uncertainty Categories

• Resource estimates always involve uncertainty• Degree of uncertainty can vary widely• COGEH recommends the use of a range of estimates• If deterministic methods are used

• Low Estimate – conservative estimate• Best Estimate – best estimate• High Estimate – optimistic estimate

• If probabilistic methods are used, then these categories reflect P90, P50 and P10 probability criteria, respectively

• These estimates assume the implementation of a project, hence do not incorporate any commercial risk.

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Resource Reporting Guidelines

• Recent revisions in NI 51-101 reflect some of the clarification that the ASC has already been enforcing in recent disclosures

• Resource disclosure is still optional under NI 51-101, however for Prospectus disclosure, “full, true, and plain” disclosure obligates disclosure of resources if they are material to the issuer

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Resource Reporting Guidelines

Changes to the “Resource” disclosure rules include;• Prepared by Qualified Evaluator (not necessarily independent)• Must use COGEH Standards• Identify location and product types of resource• Disclose risks and uncertainty category associated with the

recovery of the resource• Break out specific categories of Resources (I.e. report

Contingent and Prospective separately)• Describe significant +ve and –ve factors relevant to the

estimates

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Resource Reporting Guidelines

• State the contingencies that preclude the resources from qualifying as reserves

• Required Cautionary Language:• Contingent Resources – “There is no certainty that it will

be commercially viable to produce any portion of the resources.”

• Prospective Resources – “There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.”

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Resource Reporting Guidelines

GLJ recommends the following additional disclosures where appropriate:

• Identify Contingent Resources that are:• Currently economically recoverable• Not currently economically recoverable• Undetermined economic status (ie. Premature to identify

economic viability)

• Clarify current technology vs technology under development

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Risk Assessment Checklist

• What is the category breakdown?• Reserve, contingent resource or prospective resource

• What is the certainty level?• Low, best or high estimate?

• What is the play type?• Channel sand, Marine sand, Carbonate

• What is the core-hole drilling density?• Denser spacing implies more certainty

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Risk Assessment Checklist

• What is the recovery process?• SAGD, CSS, or other

• What is the technology being used?• Established technology or technology under development

• What are the analogies to the project?• Pilot schemes or commercial projects• Few or many

• What is the regulatory status?• Not applied, applied, or approved

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Risk Assessment Checklist

• How detailed are the development plans and costs?• Scoping or detailed design

• What is the economic status?• Uneconomic• Undetermined• Economic, and if so, what are the net present values of

the project

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Conclusions

• All Oil Sands projects and resources are not created equal

• There is commercial risk to resource development• Commercial risk diminishes as the project becomes

better defined

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Thank You/Questions?