Month: July 2009

When an O&G exploration company is fairly confident about the prospectivity of an acreage in their possession so that they try to buy up similar neighboring acreage

Refers to the likelihood of finding commercial gas or oil

 

Prospective resources are those deposits that are estimated, on a given date, to be potentially recoverable form undiscovered accumulations. Frequently, this may be in areas where geoscience and engineering data are unable to clearly define the area.

Undiscovered resources are those deposits that have not been pinpointed, but are generally expected to exist based on geologic conditions. The methodology for estimating undiscovered resources examines potential resources in mapped leads. In areas where detailed mapping has been carried out, mapped leads are analyzed by standard statistical techniques to obtain estimates of resources in each basin. Geological risk is assigned by play and also to each individual lead. For each geological basin, the risk factors are calibrated to drilling results. Estimates of undiscovered recoverable resources can be categorized as undiscovered technically recoverable resources (UTRR) and undiscovered economically recoverable resources (UERR).

Those quantities of petroleum which are estimated, on 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. Prospective resources are further subdivided in accordance with the level certainty associated with recoverable estimates assuming their discovery and development and may be subclassified based on project maturity.

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, but the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rock.

SEE PROSPECT, LEAD, PLAY with prospect being the highest order of certainty and play the lowest

Direct and indirect costs incurred to identify areas of interest that may warrant detailed exploration. Such costs include those incurred for geological and geophysical studies; rights of access to properties in order to conduct such studies, salaries, equipment, instruments, and supplies for geologists, including geophysical crews, and others conducting such studies; and overhead that can be identified with those activities.

In a farmout agreement, this is the ratio between expenditure and interest earned in a license. An arrangement whereby a farmee reimburses the farmor’s past costs and pays for exploration work and then takes a pro rata share of the farmor’s interest is known as a ground floor deal, but if the farmee only earns half the farmor’s interest in return for paying all the cost of the work it is described as a two for one promote

An agreement between the parties to a well and a host country regarding the percentage of production each party will receive after the parties participating in all the expenses have recovered a specified amount of costs and expenses. The contractor usually bears all risk and costs for exploration, development and production. In return, if exploration is successful, the contractor is given the opportunity to recover the investment from production, subject to a specific limit. The contractor also receives a stipulated share of the production remaining after cost recovery, referred to as profit hydrocarbons. Ownership is retained by the host government, however the contractor usually receives title to the prescribed share of the volumes as they are produced.

This system is often popular in jurisdictions where the legal system is viewed as not being stable and does not afford sufficient protection for a corporation’s investments. The corporation thus insists on a contract with the state or state company in order to secure some additional measure of security through international law. The host countries also like this system because they feel it gives them some added security as well in that they share in the production, which is oftentimes shared even before all the investor’s costs have been recovered. In these cases production is first split into a cost component – Cost Oil or cost Gas – and a profit component – Profit Oil or profit Gas. The proportion allowed for the recovery of costs in a given year is often limited to ensure that the profit component is positive and that the state will receive at least a minimum level of annual or monthly revenues.

PSC systems typically also include corporate income tax, royalties, bonuses, and land rental fees to form the overall fiscal system. In this way they are similar to concession systems.

Production sharing regimes that place a ceiling on the amount of production available for cost recovery produce an effect that is similar to that of royalty. With a ceiling on the amount of production available for cost recovery, an investor will not share in the economic rent until much later in the project life as it takes longer to recoup its initial investment