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Booking PUDs in a “Proven Area”… Use Caution Applying Reliable Technology


This article and series is specifically targeted for anyone involved or interested in oil and gas reserves reporting guidelines, methods, issues, calculations and pitfalls. Proceed at your own risk!


The increased prominence of unconventional reservoirs and the SEC’s passage of the Modernization of the Oil and Gas Reporting Requirements in 2009 has given rise to the common practice establishing a “Proven Area” or “Type-Curve Area” based on the well performance of similar wells and booking multiple PUDs beyond those locations directly offsetting the existing producers. The term “ringfencing” has been borrowed from the accounting world as a reference to a potential area of production in an oil or gas field that is being treated as a common group to test its validity as a Proven Area.

It’s also helpful to remember that for SEC reports, the only way to book locations more than one offset from a producing well is use Reliable Technology. Regulation S-X 210 4-10(a)(31)(i) states, “Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.”  And the definition of Reliable Technology is: “a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation” (Reg. S-X 210 4-10 (a)(25)).

As for ringfencing techniques, those can qualify as “computational methods” that should generate consistent and repeatable results – most commonly in the same reservoir formation. Regardless of whether reserve estimates are intended for SEC or Non-SEC reports, there are many common errors and issues that should be avoided.

Issue #1 – High-Graded Dataset

The ultimate intent of a ringfenced area is to determine a type-curve or volume assignment that is based on an average (or risked average) of the producing wells. In order to achieve a repeatable average, no data should be excluded without specific, technically-based reasons. In fact, data exclusion should be the exception, not the norm. For example, wells that failed (mechanical issues, for example) are sometimes excluded; but what assurance exists that those failures won’t happen again? Has that been demonstrated yet? Is it correct to book an average completion length of 7500’ if the average to date has been 6800’ due to some partial mechanical failures? Use caution culling data points before moving forward.

Issue #2 – Dataset Results are not Truly Predictive

A seemingly logical process would be to forecast all the producing wells in the ringfence area, and then use all those results as the source data for validating the area – and generating the type-curve. But for recently drilled wells, the forecast values are typically still either a type-curve assignment, or a type-curve-shaped forecast tied to an initial producing rate. The reality of unconventional resources is that it usually takes months for a given well to reach pseudo-steady state flow where an RTA or DCA-based estimate has predictive value. Including the results from new wells that are still receiving a type-curve based assignment will cause the ringfence area to appear more repeatable than is real and skews the resultant volumes back to the type-curve previously used.

Issue #3 – Incorrect Dataset Normalization

The evolution of shale production has generated fast adaptation of technological advances. Most of the changes over the past decade have been in the horizontal lateral lengths and completion designs themselves. Consequently, it’s important and necessary to attempt to normalize the historical results to account for these changes. Recent examples include the evolution from 1.0 mile, to 1.5 mile, to 2.0 mile laterals, and beyond. Another common issue is changes in frac fluids, proppant quantities, and types. These changes typically do improve results. But there can be issues when normalizing the historical data for these changes. Using lateral length as an example, if most of the previously drilled wells were 1.5 mile laterals, but the current development plan is for 2.0 mile wells, then the anticipated or targeted improvement in recovery would be 33.3% (assuming no other changes). Sometimes this is the case, but not always. And have there been enough 2.0 mile wells drilled, with enough producing time, to determine the average recovery of the longer design? Other types of changes can be more complicated to track.

Issue #4 – Failure to Recognize Parent vs Child Results

Most resource plays will ultimately be developed with a well spacing that generates some amount of offset interference. Unconventional and conventional reserves where some type of field-wide well spacing is required, inevitably have some amount of well interference or the field would be underdeveloped. Consequently, ringfence areas typically include a combination of “Parent” and “Child” wells that may or may not be exhibiting offset interference. If interference is already occurring in the producing well dataset, then it needs to be recognized so that the data can be evaluated properly. In fact, if there is a good population of child wells identified, these can be very helpful to predict the amount of reduced recovery from parent to child.

And regardless of if any performance degradation has been observed in the producing well dataset, this question must also be considered when assigning volumes to the undeveloped locations in the ringfence area. Producing well spacing and vintage are critical to analyze and understand when booking reserves to undeveloped locations.


For anyone wanting a deeper understanding of methods in estimating Proved Reserves in an unconventional resource play, an excellent resource is the “SPEE Monograph 3 – Guidelines for the Practical Evaluation of Undeveloped Reserves in Resource Plays” which can be obtained via the SPEE website (see link below)… or just reach out to us for a dialog. Thanks for reading!

Link for SPEE Monograph 3:

Contact CG&A about Reserves:

Special thanks to @Jeffrey Wilson PE@Jonathan Schmit, PE@Heather Anderson, P.G. and @Shelby Loskorn for their efforts in publishing this series.