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ROBINSON
J. GLENN ROBINSON, P. ENG.
PRESIDENT
PETROLEUM CONSULTING LTD.
July 29, 2010
International Accounting Standards Board,
IASC Foundation / IASB,
30 Cannon Street,
London EC4M 6XH,
United Kindom
Dear Sir/Madam
Re: Comments on Extractive Activities – Discussion Paper DP/2010/1
After reviewing the Discussion Paper DP/2010/1 I am forwarding some General Comments and also
offering my Consulting Services to the IASB to strengthen further development of the International
Accounting Standards by providing a liason between the accounting and evaluation professionals. The
author is a Professional Petroleum Engineer and consequently this document will only address oil and
gas activities.
General Comments
A major deficiency in the Discussion Paper is the lack of reference to Oil and Gas Reserves Evaluations
(Evaluation Reports) and the importance of the information presented therein. They, by far, contain the
most important information an investor can obtain about an oil and gas company. There are many
documents available explaining how evaluations should be prepared and what the information provides.
The best document on this topic is the Canadian Oil and Gas Evaluation Handbook (COGEH).This
handbook provides the standards for evaluating oil and gas reserves in Canada and can also be applied
throughout the World. The Alberta Securities Commission (ASC) has exclusively accepted the Reserves
and Resources Definitions and the Evaluation Practices and Procedures as presented in the COGEH in
the development of National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (NI
51-101). Also the Association of Professional Engineers, Geologists and Geophysicists of Alberta
(APEGGA) have endorsed the COGEH in their Practice Standard for Evaluation of Oil and Gas
Reserves for Public Disclosure. Oil and gas companies and countless other stakeholders in the oil and
gas industry depend upon the COGEH when preparing and when using reliable public disclosure
information.
Advanced Analysis of Petroleum Reserves
Site 25, Box 14, RR # 8
Calgary, Alberta, Canada
T2J 2T9
Tel (Bus): 403-850-6184
Fax (Bus): 403-931-6757
Email: ggrobinson@xplornet.com
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Another major issue evident in the Discussion Paper is the concept that all disclosure information should
adhere to accounting rules and principles, including Oil and Gas Reserves Evaluations. Failure to accept
that the converse is what must be incorporated creates problems in both the accounting and evaluation
business which the industry has been trying to correct for the past 10 years. Oil and Gas Reserves
Evaluations creates much of the information which is used by accountants. Some of the accounting
rules that have caused problems in the past in evaluation precedures are:
- the use of constant prices and costs – doesn’t represent value;
- the use of only Proved Reserves and respective Net Present Values – this is not the best estimate
of reserves and values;
- use of full cost accounting where historical costs are used to represent the value of oil and gas
assets – in the oil and gas industry seldom does historical costs represent the values of assets;
- Ceiling Tests using only Proved Reserves. Finally in Canada accountants are using the Proved +
Probable Reserves which are the supposedly the Best or Expected Reserves.
- converting natural gas to barrels of oil equivalent on an energy equivalence when making total
value conversions – should use value equivalence;
- using current annual costs and reserves additions in calculating Finding and Development costs –
must use all historical and future costs required to develop a reserve addition. A much better
indicator of success is the “discounted return on investment” (DROI).
When reviewing the Discussion Paper some other specific concerns were noted:
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The IASB should not contimplate developing one set of definitions to cover both mineral and
hydrocarbon reserves and resources - keep them separate.
The Discussion Paper refers to 2P (Proved + Probable) Reserves as the Best Estimate. This is
incorrect. In current definitions, 2P Reserves are representative of a confidence level of P50
which statistically is the Median Value. In the oil and gas business, a right skewed distribution
curve is the most likely shape of the curve where the Best Estimate is the Mean Value which is
between the Median (P50) and the Mode (the most likely value)
The IASB suggests using the Petroleum Resource Management System (PRMS) for reserves
and resources definitions. The COGEH reserves and resources definitions have been used in
Canada for over 8 years and it has been proven to be a much superior system. It must be
considered in the development of new accounting standards.
One problem in PRMS is that the guidelines suggest that different reserve estimates will be
obtained whether a Deterministic method or a Probabilistic method is used. This is ludicrous.
How can you get two different answers from the same data set. I would suggest that one or
maybe both methods are flawed and the evaluator does not understand some basic statistical
concepts.
The IASB doesn’t want to utilize Independent Evaluators. In Canada, all Evaluations prepared
for disclosure purposes must be prepared by Independent Qualified Reserves Evaluators or be
audited by Independent Qualified Reserves Auditors. The qualifications for these Evaluators and
Auditors is presented in the COGEH.
There is some concern that there is not enough Independent Qualified Reserves Evaluators and
Auditors to perform annual company oil and gas reserves and resources evaluations. Since the
requirement to use Independent Evaluators was implemented in Canada, there has always been
enough professional evaluators to prepare the annual evaluations.
The IASB mentions concern about Risk and Uncertainty in the Discussion Paper to the extent
that they appear to use the terms interchangeable. Firstly, these terms are not synonymous. Risk
is defined as: the possibility of meeting danger or suffering harm. Uncertainty is defined as: not
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known or not knowing certainty. In other words when Risk is applied to an outcome of an event
it means that the outcome can only be worse than estimated. This was the philosophy used in
pre-2000 evaluations. When Uncertainty is applied to an outcome of an event it means that there
are possibilities that the actual outcome may be greater or lesser than the estimate. This is the
new philosophy that is being incorporated into the evaluation guidelines. An example of this is
the new concept of estimating Proved (1P), Proved + Probable (2P) and Proved + Probable +
Possible (3P) Reserves, where 1P is a Pessimistic estimate, 2P is the Best or Expected estimate
and the 3P is an Optimistic estimate. Consequently, this Uncertainty Philosophy, is being
stressed so that Best Estimates will be provided in the Evaluation Report upon which sound
business decisions can be made. Also sensitivity values will be readily available from an
evaluation of the Pessimistic and Optimistic values. From a sound understanding of the
Evaluation Process one can then appreciate how Uncertainties and Sensitivities are all-inclusive
in the Evaluation Report.
Consulting Services
As mentioned and as evident in the Discussion Paper, the authors do not have expertise in Oil and Gas
Reserves and Resources Evaluations. Also indicated was a suggestion that the authors could become
educated in the Evaluation process or that the IASB retain the sevices of a Qualified Reseves Evaluator
and Auditor. As a result of this situation, I would like to be considered to provide the required expertise
for the future development of the new International Accounting Standards.
“Even though they do not appear on a balance sheet, oil and gas reserves and resources are among the
most significant assets of an oil and gas company. By recognizing this fact, we cannot go far astray”.
With this in mind I believe I am uniquely qualified to undertake this vitally important role. My
Curriculum Vitae is attached to this document; however, my specific qualifications pertinant to this
position are emphasised as follows:
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I have over 44 years of experience in the Oil and Gas Industry with 37 of these years in the
Evaluation of Oil and Gas Reserves and Resources. Much of my evaluation expertise was gained
while employed by Sproule Associates Limited (Sproule), a highly recognised evaluation firm.
From 1992 to 2000 I retained the position of President of Sproule after which I stepped down as
president and retired from the firm.
In 2000 I formed Robinson Petroleum Consulting Ltd. to allow me to continue my services to the
industry, specializing in “Advanced Analysis of Petroleum Reserves”.
I belong to the Association of Professional Engineers, Geologists and Geophysicists of Alberta
(APEGGA) which allows me to practise Engineering in the province of Alberta, Canada.
I have gained extensive International experience while providing consulting services, teaching
evaluation courses and presenting papers on the Evaluation of Oil and Gas Reserves and
Resources throughout the World
During my latter years with Sproule I spearheaded the development of the COGEH and to this
day I am involved in the continued development of the handbook.
From 2002 to 2005 I was under contract to the ASC and co-authored National Instument 51-101
and created an oil and gas division at the ASC.
My other credentials and expertise are presented in the attached Curriculum Vitae
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Conclusions
I hope that the IASB will benefit from the General Comments provided in this document. Please be
advised that these comments were obtained from a preliminary review of the Discussion Paper. I have
not included many solutions to the concerns that I have noted; however, should you retain my services,
to assist in development of a future International Accounting Standard, I will recommend solutions to
these problems and to addditional issues that will arise.
I also hope that you will consider my services to assist your staff of national accounting standard-setters
by providing expertise in the Evaluation of Oil and Gas Reserves and Resources. My experience is
unique having worked in the Oil and Gas Evaluation Industry, Sprearheaded the development of
COGEH and Co-authored National Instument 51-101.
Further, please note that I am totally “Unbiased”. I am not affilliated with any Oil and Gas Company,
any Oil and Gas Evaluation firm or any other agencies involved in the oil and gas industry.
If you or your staff wish to discuss any aspects of this document I can be reached at the address,
telephone or email information presented at the bottom of page 1.
Yours Truly,
J Glenn Robinson, P.Eng.
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ROBINSON
J. GLENN ROBINSON, P. ENG.
PRESIDENT
PETROLEUM CONSULTING LTD.
CURRICULUM VITAE
J. GLENN ROBINSON, P. ENG
Site 25, Box 14, RR# 8
Calgary, Alberta, Canada T2J 2T9
Tel (Bus): 403-850-6184 (Fax): 403-931-6757
Email: ggrobinson@xplornet.com
University Education
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B.Sc (Honours), Civil Engineering, Queen’s University, Kingston, Ontario, 1966
Employers
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2005 − present − Robinson Petroleum Consulting, Ltd., President
2002 − 2005 − Alberta Securities Commission, Consultant
2000 − present − Robinson Petroleum Consulting, Ltd., President
1973 − 2000 − Sproule Associates Limited, Calgary, Alberta, President (1992 − 2000)
− Sproule International Limited, Calgary, Alberta, President (1995 − 2000)
− Sproule Associates Inc., Denver, Colorado, USA, President (1997 − 2000)
1971 − 1973 − Scientific Software of Canada Ltd., Calgary, Alberta, Reservoir Simulation Engineer
1966 − 1971 − Shell Canada Ltd., Calgary, Alberta, Petrophysical and Exploitation Engineer
International Experience
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Canada (Western, Eastern, Offshore and Arctic), United States (including Gulf Coast Offshore), Australia,
China, Egypt, New Zealand, Syria, Venezuela and Columbia.
Professional Memberships
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Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA)
Society of Petroleum Evaluation Engineers (SPEE)
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Selected Projects
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Since 1989 involved in establishing standard reserves and resources definitions and guidelines for use by
engineers and geologists in evaluating oil and gas assets.
Directed Sproule Associates Limited (established in 1951) to form Sproule International Limited (established
in 1995) and Sproule Associates Inc. (established in 1997) to better serve Sproule’s international and United
States clients, respectively.
Organised the publication of Sproule Associates Limited’s corporate history, “Spirit of Success: The Sproule
Story”, which was published in December 1997 and which won the Petroleum History Society’s Book of the
Year award.
Prepared a manual entitled “A Petroleum, Natural Gas and By-Product Reserves Management System” for the
Colombian Ministry of Mines and Energy and for Empresa Colombiana de Petroleos.
Spearheaded the development the “Canadian Oil and Gas Evaluation Handbook (COGEH)” and actively
remain involved in the preparation of new material and the up-dating of the COGEH.
Involved in the preparation of “The CSA National Instrument NI 51−101”.
Teaching Assignments
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Since 1975, organized and presented numerous courses on the “Evaluation of Canadian Oil and Gas
Properties,” at the University of Calgary, banking institutions, chartered accounting firms, oil and gas
companies, legal firms and brokerage firms, both domestic and international..
Taught a six day “Economic Evaluation” seminar to the Petroleum Cadres in Beijing, China.
Presented single-day seminars on “Reserves and Petroleum Economics” in Changquing, Central Sichuan,
Dagang, Daquing and East Sichuan, Shengli and Tuha and to the Research Institute of Petroleum Exploration
and Developments in Beijing and Langfang, China, as well as a two-day reserves and petroleum economics
seminar in Canada for the Dagang, Huabei, Shengli and CNPC staff.
Taught a two-week course on “Economic Evaluations” to Russian delegates at the Fracmaster Institute,
Nicosia, Cyprus.
Prepared a manual and presented lectures on “Risk Analysis of Canadian Oil and Gas Properties”.
Committee Work
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Reserves Monograph Advisory Committee, Petroleum Society of CIM. Publication of “Determination of Oil
and Gas Reserves, Petroleum Society Monograph No. 1”.
Standing Committee on Reserves Definitions, Petroleum Society of CIM. Contributed to the writing of
“Definitions and Guidelines for Classification of Oil and Gas Reserves,” March 1993
Society of Petroleum Evaluation Engineers: Director 1996 − 1998; Chairman, Calgary Chapter 1997 − 1998.
Alberta Securities Commission Oil and Gas Securities Task Force, September 1998 to March 1999.
Standing Committee on Reserves Evaluations, Society of Petroleum Evaluation Engineers, participating in the
development of a national standards handbook for estimating, evaluating and reporting oil and gas reserves.
Entitled “Canadian Oil and Gas Evaluation Handbook (COGEH) ”.
Recent Publications and Presentations
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Robinson, J.G. (2005), “The Future of Reserves Regulations − Global Disclosure Rules”.
Keynote
luncheon address at the “Accurately Reflecting the Value of Assets − The Canadian View”, roundtable
discussion for the Energy Forum, Calgary, Alberta (October 27, 2005).
Robinson, J.G. (2005), “NI 51−101 Enforcement Options − Oil and Gas Department”. Presented at the “Oil
and Gas Disclosure: “Responding to the Challenges of NI−101 Compliance”, conference for the Conference
Board of Canada, Calgary, Alberta (October 6 and 7, 2005).
Robinson, J.G. (2005), (a) “Canada − NI 51−101 & COGEH − Rules, Guidelines, Results,
(b) “The Future of Global Disclosure Rules”. Presented at the “Global Reserves Valuation,
Management and Reporting”, conference for the IQPC, London, England, (September 12 and 13, 2005).
Robinson, J.G. (2005), (a) “NI 51−101 & COGEH − Rules, Guidelines, Results” (b) “Deterministic vs.
Probabilistic Methods of Reserves Analysis” (c) “The Future of Reserves Regulations”. Presented at the
“Strategies to Effectively Estimate, Classify and Report on Your Oil and Gas Reserves”, conference for the
Eye for Energy − Oil and Gas Reserves, London, England, (April 26 and 27, 2005).
Robinson, J.G. and Elliott, Dr. David (2004), “Canadian National Instrument 51−101 − Implementation and
Consequences”. Presented via telephone to the “Reserves Valuation, Management and Accounting”, seminar
for the IQPC, Houston, Texas (November 15, 2004).
Robinson, J.G. (2004), “Common Deficiencies in Oil and Gas Disclosure”. Presentation at the Conference
Board of Canada Symposium entitled “Oil and Gas Disclosure: Experience in Complying with the New
Rules”, Calgary, Alberta (November 1, 2004).
Robinson, J.G. and Elliott, Dr. David (2004), “National Instrument 51−101 (NI 51–101) – Reserves
Reconciliations”. Published in the Journal of Canadian Petroleum Technology (JCPT), Calgary, Alberta
(November 2004).
Robinson, J.G. and Elliott, Dr. David (2004), “National Instrument 51−101 (NI 51−101) − Standards of
Disclosure for Oil and Gas Activities”. Published in the Journal of Canadian Petroleum Technology (JCPT),
Calgary, Alberta (July 2004).
Robinson, J.G. (2004), “The Canadian Oil and Gas Evaluation Handbook (COGEH) and National Instrument
51−101 (NI 51−101)”. Presentation at the “Estimating and Reporting and Avoiding Write-downs by ReEvaluating Judgments, Rules and Processes” Energy Forum in Houston, Texas (April 14, 2004).