How can we ensure that countries, companies and organizations are all assessing and estimating their reserves in the same manner?
This is an issue which has been under consideration for many years, and although a United Nations Framework Classification (UNFC) for Solid Fuels and Mineral Com modities has been in place since 1997, and UN members encouraged to use it, it did not cover oil and gas. So in 2001 the UNECE (United Nations Economic Commission for Europe) Committee for Sustainable Energy created an Ad Hoc Group of Experts to extend the principles of this Classification to other energy resources, like oil, natural gas and uranium.
As David MacDonald, Vice Chairman of the Bureau of the Expert Group on Resource Classification (EGRC), explains; “We work in a global industry, and need global standards that are clear and consistently communicated. By harmonizing energy reserves and resources terminology, we can obtain a more reliable and consistent estimate of global quantities of fossil energy, both in place in the subsoil and recoverable. In addition, increasing overlap between minerals and petroleum extraction methods, such as the mining of bitumen and other nonconventional petroleum operations, makes a common generic system essential. Developing the UN Framework, the universally applicable instrument for classification based on market criteria, was the obvious way forward. By talking to a wide range of the stakeholders involved, we have been able to develop an international scheme that can act as an umbrella for national systems for reserves and resources evaluations, making them comparable and compatible.”
In 2004 the initial classification, UNFC-2004, was published. Since then, the EGRC has partnered with the SPE and CRIRSCO to ensure that the Classification is in harmony with and meets the specifications of the Petroleum Resources Management System of the SPE and its co-sponsors (WPC, AAPG and SPEE) and the CRIRSCO Template (which is widely used as the basis for solid minerals classification). As a result, a revised version, UNFC-2009, was approved for use in November 2009.
Three Dimensional Representation
How does such an all-encompassing classification system work?
“UNFC-2009 is a generic principle based system in which quantities are classified on the basis of the three fundamental criteria,” David explains. “These are economic and social viability (E), field project status and feasibility (F), and geological knowledge (G), using a numerical coding system, and each of these are sub-divided into three or four categories (e.g. E1, E2, E3), which are each defined using plain, generic language. Combinations of these criteria can be used to create a three-dimensional classification system with three axes; E, F and G.”
“The E axis designates the degree of favorability of social and economic conditions in establishing the commercial viability of the project, including consideration of market prices and relevant legal, regulatory, environmental and contractual conditions,” he continues. “The second set, the F axis, designates the maturity of studies and commitments necessary to implement development projects, ranging from early exploration efforts before a deposit or accumulation has been confirmed, through to a project actively extracting and selling a commodity, reflecting standard value chain management principles. The third set of categories (the G axis) designates the level of confidence in the geological knowledge and potential recoverability of the quantities.”
The categories and optional subcategories are combined in the form of ‘classes’, which are uniquely defined by a particular combination from each of the three criteria, E, F and G. For example, if the estimated quantities in a resource can be classified as E1, F1 and G1, the project is designated as 111, which would be considered as ‘proved reserves’ under the SPE-PRMS system. The numbers are always quoted in the same sequence (E, F, G) and the numerical code is used so that the Classification can be independent of language or alphabet.
Obviously, except for past production, quantities are always estimated, and this uncertainty is communicated either by quoting discrete quantities of decreasing levels of confidence (high, moderate, low) or by generating three specific scenarios or outcomes (low, best and high estimates). The former approach is typically applied for solid minerals, while the latter method is commonly used in petroleum.
“There are also efforts underway to extend the UNFC to address renewable energy resources, which would allow a meaningful comparison of renewable and non-renewable energy projects, David adds. “Currently, there are no classification systems that are applicable to all renewable energy resources.”
Benefits of Standardized Classification
What are the benefits to the industry in ensuring comparable reserves and resources information?
“I think they are very significant,” David replies. “Harmonized energy reserves and resources terminology offers a key to obtaining a more reliable and consistent estimate of global quantities of fossil energy, both in place in the subsoil and recoverable. It aids transparency and improved comparability of assessments of asset or company values, and, as we all know, better data leads to more informed and efficient investment decisions. However, ensuring that there is a method of classification that meets the needs of all users requires understanding and consistency in both application and standard setting.”
The UN Framework Classification is a long-term activity, aiming to provide a system which is internationally applicable and has international acceptance; a flexible system for application at global, national, industrial or institutional level. By developing a system that is based on a numerical classification code which is simple and intuitive to use, UNFC-2009 provides a global communications tool that transcends language, commodity type and extraction methodology.