[Click here to watch the video on YouTube]

Q: What are oil and gas reserve reports?

Bruce: Oil and gas reserve reporting is a comprehensive reserve estimate classification of a company’s reserve and reservoir assets, either for a particular field or company-wide, multiple fields. It is a strict, industry-sanctioned guideline delivered by and assessed by a professional engineer who certifies his or her findings and the economic viability of a specific reserve report and the reserves contained within.

Q: What goes into an oil and gas reserve report?

Bruce: A large diversity of things. It has to be comprehensive as to the financial viability of the property, which will include its existing oil and gas contracts, the prospects of future contracts and the estimated future price of oil and gas over the production life of the reserves in the report.

Cost, both operational and development costs – any type of expenses that go into the recovery of those reserves have to be considered.

Tax considerations: All different kinds of taxes, which include federal and local taxes affecting the production of the oil and/or gas of the property.

Royalties that must be paid to the mineral rights owners that have a stake in the properties being developed.

Risk contingencies: The oil and gas reserve report must contain the upside and downside potential of all of the elements of the economic story, the model that validates these reserves, the recoverable financial reserves.

It is certified, it considers the regulatory and environmental impact and lease maintenance, and even considers the risk (or lack of risk) to the access of the properties to implement this whole financial model.

Q: Why do oil and gas companies need oil and gas reserve reports?

Bruce: As owners, understanding the value of their properties and being able to represent it to potential buyers when they are trying to sell, they will be asked to provide an independent third-party report that a potential buyer would audit and work their own numbers from.

It’s a starting point for a startup company or any public company, They are required to have third-party reserve assessments.

Q: Why is it important that oil and gas reserve reports come from an independent third party?

Bruce: Because it’s an independent opinion, it’s not prejudiced by the owner and it’s not prejudiced by the seller. It’s intended to be independent, unencumbered by the motives of the buyer or seller.

Q: How often does a company need to get oil and gas reserve reports?

Bruce: Oil and gas reserves are typically needed once a year.

For more information about SPRI and how we can help your upstream oil and gas operations, check out some of our recent articles at sprioilgas.com/blog.