BP 2013 Annual Report Download - page 250

the group’s business plan. A formal review process exists to ensure
that both technical and commercial criteria are met prior to the
commitment of capital to projects.
• Group audit, whose role is to consider whether the group’s system of
internal control is adequately designed and operating effectively to
respond appropriately to the risks that are significant to BP.
• Approval hierarchy, whereby proved reserves changes above certain
threshold volumes require central authorization and periodic reviews.
The frequency of review is determined according to field size and
ensures that more than 80% of the BP proved reserves base
undergoes central review every two years, and more than 90% is
reviewed centrally every four years.
BP’s vice president of segment reserves is the petroleum engineer
primarily responsible for overseeing the preparation of the reserves
estimate. He has more than 30 years of diversified industry experience
with the past nine spent managing the governance and compliance of
BP’s reserves estimation. He is a past member of the Society of
Petroleum Engineers Oil and Gas Reserves Committee, a sitting member
of the American Association of Petroleum Geologists Committee on
Resource Evaluation and chair of the bureau of the United Nations
Economic Commission for Europe Expert Group on Resource
Classification.
No specific portion of compensation bonuses for executive directors and
senior management is directly related to proved reserves targets.
Additions to proved reserves is one of several indicators by which the
performance of the Upstream segment is assessed by the remuneration
committee for the purposes of determining compensation bonuses for
the executive directors. Other indicators include a number of financial and
operational measures.
BP’s variable pay programme for the other senior managers in the
Upstream segment is based on individual performance contracts.
Individual performance contracts are based on agreed items from the
business performance plan, one of which, if chosen, could relate to
proved reserves.
Compliance
International Financial Reporting Standards (IFRS) do not provide specific
guidance on reserves disclosures. BP estimates proved reserves in
accordance with SEC Rule 4-10 (a) of Regulation S-X and relevant
Compliance and Disclosure Interpretations (C&DI) and Staff Accounting
Bulletins as issued by the SEC staff.
By their nature, there is always some risk involved in the ultimate
development and production of proved reserves including, but not limited
to: final regulatory approval; the installation of new or additional
infrastructure, as well as changes in oil and gas prices; changes in
operating and development costs; and the continued availability of
additional development capital. All the group’s proved reserves held in
subsidiaries and equity-accounted entities with the exception of those
proved reserves held by our Russian equity-accounted entity, Rosneft are
estimated by the group’s petroleum engineers.
DeGolyer & MacNaughton (D&M), an independent petroleum
engineering consulting firm, has estimated the net proved crude oil,
condensate, natural gas liquids (NGLs) and natural gas reserves, as of
31 December 2013, of certain properties owned by Rosneft. The
properties evaluated by D&M account for 100% of Rosneft’s net proved
reserves as of 31 December 2013. The net proved reserves estimates
prepared by D&M were prepared in accordance with the reserves
definitions of Rule 4-10(a)(1)-(32) of Regulation S-X. All reserves
estimates involve some degree of uncertainty. BP has filed D&M’s
independent report on its reserves estimates as an exhibit to this
document.
Our proved reserves are associated with both concessions (tax and
royalty arrangements) and agreements where the group is exposed to
the upstream risks and rewards of ownership, but where our entitlement
to the hydrocarbons is calculated using a more complex formula, such as
with PSAs. In a concession, the consortium of which we are a part is
entitled to the proved reserves that can be produced over the licence
period, which may be the life of the field. In a PSA, we are entitled to
recover volumes that equate to costs incurred to develop and produce
the proved reserves and an agreed share of the remaining volumes or the
economic equivalent. As part of our entitlement is driven by the monetary
amount of costs to be recovered, price fluctuations will have an impact
on both production volumes and reserves.
We disclose our share of proved reserves held in equity-accounted
entities (joint ventures and associates), although we do not control these
entities or the assets held by such entities.
BP’s estimated net proved reserves and proved
reserves replacement
Eighty-three per cent of our total proved reserves of subsidiaries at
31 December 2013 were held through joint operations (82% in 2012),
and 31% of the proved reserves were held through such joint operations
where we were not the operator (31% in 2012).
Estimated net proved reserves of liquids at 31 December 2013abc
million barrels
Developed Undeveloped Total
UK 169 380 549
Rest of Europe 163 55 218
US 1,297 907 2,204d
Rest of North America – 188 188
South America 29 45 74e
Africa 320 195 515
Rest of Asia 320 202 522
Australasia 57 22 79
Subsidiaries 2,355 1,994 4,349
Equity-accounted entities 3,510 2,211 5,721f
Total 5,865 4,205 10,070
Estimated net proved reserves of natural gas at 31 December 2013ab
billion cubic feet
Developed Undeveloped Total
UK 643 314 957
Rest of Europe 364 39 403
US 7,122 2,825 9,947
Rest of North America 10 – 10
South America 3,109 6,116 9,225g
Africa 961 1,807 2,768
Rest of Asia 1,519 3,671 5,190
Australasia 3,932 1,755 5,687
Subsidiaries 17,660 16,527 34,187
Equity-accounted entities 5,837 5,951 11,788h
Total 23,497 22,478 45,975
Net proved reserves on an oil equivalent basis
million barrels of oil equivalent
Developed Undeveloped Total
Subsidiaries 5,399 4,844 10,243
Equity-accounted entities 4,517 3,236 7,753
Total 9,916 8,080 17,996
aProved reserves exclude royalties due to others, whether payable in cash or in kind, where the
royalty owner has a direct interest in the underlying production and the option and ability to make
lifting and sales arrangements independently, and include non-controlling interests in
consolidated operations. We disclose our share of reserves held in joint ventures and associates
that are accounted for by the equity method although we do not control these entities or the
assets held by such entities.
bThe 2013 marker prices used were Brent $108.02/bbl (2012 $111.13/bbl and 2011 $110.96/bbl)
and Henry Hub $3.66/mmBtu (2012 $2.75/mmBtu and 2011 $4.12/mmBtu).
cLiquids include crude oil, condensate, natural gas liquids and bitumen.
dProved reserves in the Prudhoe Bay field in Alaska include an estimated 72 million barrels on
which a net profits royalty will be payable over the life of the field under the terms of the BP
Prudhoe Bay Royalty Trust.
eIncludes 21 million barrels of crude oil in respect of the 30% non-controlling interest in BP
Trinidad and Tobago LLC.
fIncludes 23 million barrels of crude oil in respect of the 0.47% non-controlling interest in Rosneft
held assets in Russia.
gIncludes 2,685 billion cubic feet of natural gas in respect of the 30% non-controlling interest in
BP Trinidad and Tobago LLC.
hIncludes 41 billion cubic feet of natural gas in respect of the 0.44% non-controlling interest in
Rosneft held assets in Russia.
246 BP Annual Report and Form 20-F 2013