COMMENTS ON IASB EXTRACTIVE INDUSTRIES DISCUSSION PAPER DP/2010/1
I support the recommendations that have been made by other respondents that the IASB consider
reference to the Canadian Oil and Gas Evaluation Handbook (COGEH) as a reporting standard in
addition to the Petroleum Resource Management System (PRMS). This would be similar to the
proposed use of CRIRSCO for mining, which refers to more than one technical standard, such as
JORC and SAMREC.
I have been employed in the petroleum industry for 45 years, mostly in oil and gas field
development and in reserves and resource evaluation. I was closely involved in the development
of COGEH and, to a minor extent, PRMS. I have been reviewing oil and gas securities
disclosure in Canada since 1997, for the last few years as Chief Petroleum Advisor for the
Alberta Securities Commission (ASC), which has the prime role in governing oil and gas
disclosure in Canada. Although I have contributed to comments that you have received from
other organisations, I thought it would be helpful to provide some additional background,
especially as these other comments contain limited detailed information. I would be pleased to
provide additional technical comment or information if it would assist in the IASB review of this
issue.
I have no reason to believe that any information or opinions I express in this note would differ
from those of my current employer, the ASC, but these are my personal, professional, comments
not an official opinion of the ASC.
The Discussion paper has referred to the PRMS as the standard that it is considering for oil and
gas evaluation and reporting. The implementation of an Extractive Industries IFRS could have a
significant impact on Canadian oil and gas evaluation practice and reporting, if it referred to a
practice standard that differs from the current Canadian standard of the COGEH.
The Society of Petroleum Evaluation Engineers (Calgary)1 published the first of three volumes
of the COGEH, in 2002. In 2003, COGEH became the recognised practice standard for
reporting oil and gas reserves and resources under Canadian securities law, National Instrument
51-101 (NI 51-101). In Canada, membership of a professional organisation is a mandatory
legislated requirement in order to practice the professions of engineering, geology and
geophysics and the professional organisation which governs almost all evaluation professionals
in Canada, the Association of Professional Engineers, Geologists, and Geophysicists of Alberta
(APEGGA), recognises COGEH as the practice standard for oil and gas evaluations.
Since 2003, oil and gas evaluations carried out in Canada have been done according to COGEH,
including not only oil and gas reserves and resources in Canada, but also the extensive oil and
gas interests of Canadian companies in many other countries. This encompasses almost half of
the world’s public oil and gas companies and a significant portion of the world’s oil and gas
reserves and resources outside the control of the NOCs.
1
The Society of Petroleum Evaluation Engineers (Calgary) is affiliated with, but independent from, the Society of
Petroleum Evaluation Engineers.
There are many similarities between PRMS and COGEH; COGEH uses the same classification
system and terminology as PRMS, and the results of evaluations can be more or less the same.
However, although COGEH was written primarily as a guide to good practice, it was also written
with financial reporting in mind, and has guidelines and examples that are much more extensive
and developed than those of PRMS. PRMS adopted a different philosophy, to accommodate a
variety of approaches, mainly of business uses, with the likelihood of more variance in the
results2. Initial moves, which I support and am promoting, have been made for a convergence of
PRMS and COGEH, but there has been no significant action. At this time, of the four sponsors
of PRMS, only the Society of Petroleum Evaluation Engineers (SPEE) has been involved in
preliminary discussions to this end, and I am not aware of any indication of interest by the other
three, the Society of Petroleum Engineers (SPE), the American Association of Petroleum
Geologists (AAPG) and the World Petroleum Council (WPC).
Key aspects of a resource classification system are that it provides:
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Clear descriptions (classification targets), that allow limited interpretational variance, of
the various resource classes, and;
results that can be tested (audited) in an objective and disciplined manner.
Because COGEH is referenced as the resource classification standard for Canadian securities
disclosure (National Instrument 51-101), test information has been provided by NI 51-101
disclosures for the last seven years. Tests3 have confirmed its suitability for use in a public
financial market, and also indicated where updating and improvements are needed. PRMS may
be widely used outside the public reporting arena, but, as far as I know, similar information to
test PRMS is not available, and I am not aware of published assessments of the results of
evaluations carried out under PRMS that have provided any test of consistency or quality. There
is, therefore, little motivation to replace COGEH with PRMS. PRMS is not recognised by
securities regulators in Canada (or the USA) as suitable for securities disclosure.
I am concerned that referring exclusively to PRMS as the standard for the evaluation of oil and
gas reserves and resources ignores the established and tested practices of COGEH in Canada, a
major arena of public reporting of oil and gas reserves, and could potentially result in the
disclosure of reserves information that is of lesser quality.
2
The reasons for this are detailed and technical, and perhaps arcane, but a significant example is the subjectivity of
the interpretation of the PRMS deterministic criterion for reserves, in particular the wide variance and inconsistency
in interpretation of the proved reserves criterion of “reasonable certainty”. A survey of participants at the 2007
conference in Washington at which PRMS was “launched” resulted in the word “proved” being considered to
indicate a probability of 89% with an IQR of 0, while the criterion of “reasonable certainty”, that proved reserves are
supposed to satisfy, was considered to represent a probability of 74% with an IQR or 30% (i.e., 50% of the
respondents considered it to lie between 44% and 100% probability). Tests of this data indicated that this is a
statistically significant difference. COGEH requires proved reserves to satisfy a clearer probabilistic target of P90,
and NI 51-101 requires disclosure of data by which this can be statistically tested.
3
Staff of the ASC has carried out over 1000 detailed technical audits, and many more less detailed technical audits
and reviews of oil and gas reserves reports plus annual compliance reviews of several hundred disclosure filings.
Statistical analyses of Technical Revisions reported in NI 51-101 filings have provided a measure of the quality of
the reserves estimates. See publications of the Alberta Securities Commission, in particular the annual Oil and Gas
Report.
As a further comment, resource information is used for many purposes. The UNECE Expert
Group on Resource Classification identified four groups of users of resource information:
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International Energy and Minerals Studies
Government Resources Management
Industry Business Process (i.e., operating a mineral extraction operation)
Financial Reporting (including both accounting and the capital market)
Accounting is only one of these, and in developing an Extractive Industries IFRS, it is hoped that
the IASB will recognise the need to avoid conflict or undue variance with the needs and practices
of the other groups, in particular in areas such as Reserves and Resource Definitions. It is worth
noting that, at this time, further development of the oil and gas definition and guideline systems
of both COGEH and PRMS, is needed to adequately meet the needs for Resource Studies or
Government Resource Management.
The evaluation of oil and gas resources is a technically complex forecasting exercise that
requires expertise in geology and engineering, disciplines that are unlikely to be found within the
IASB. Should the IASB consider further consultation on this issue, it is suggested that it should
involve a significantly wider set of organisations and individuals than the sponsors of PRMS, the
SPE, the AAPG and the SPEE.
The IASB should also consider whether, or to what extent, an Extractive Industries IFRS should
attempt to set or to choose resource evaluation standards within an accounting rule.
Dr. David C. Elliott, F.G.S., P.Geol.
Chief Petroleum Advisor, Alberta Securities Commission
Vice-Chair, UNECE Expert Group on Resource Classification