New System for Resource Classification

Since 2002 a group in the UN has worked on developing an international system for classification of energy and mineral resources. The Norwegian Petroleum Directorate (NPD) has played an important part in this work, which will be completed in June.

Per Blystad in the Norwegian Petroleum Directorate has headed the petroleum group in the intergovernmental "UNECE Ad Hoc Group of Experts for Harmonization of Reserves/Resources Classification".

The group's terms of reference were recently renewed and extended for three more years. This was inter alia done to maintain the classification and at the same time support UNECE's Committee for Sustainable Energy in its work on the supply of fossil fuels. The group's new name is Intergovernmental Ad Hoc Group of Experts on the Supply of Fossil Fuels, and will be led by Sigurd Heiberg in Statoil.

Need for a uniform system
The classification that the group has proposed is currently subject to a consultation process. After the consultation round, all comments will be reviewed before the international system can be recommended for use. This is the first time such work on combining the classification of coal, minerals, petroleum and uranium has been implemented with so many nations and organizations involved.

Even though the use of classification differs for nations, organizations, companies and investors, industry and the authorities have in recent years seen an increasing need to develop systems that are more uniform and provide the opportunity to gather the most important energy carriers and minerals within one system. Among other things, this forms the basis for much more effective rules and standards, for example for uniform stock exchange rules. In this manner we will achieve better conformity between the companies' basis for planning and decisions, and what is reported to the stock exchange and therefore forms the basis for the investors.

"The international organizations World Petroleum Congress (WPC), Society of Petroleum Engineers (SPE) and American Association of Petroleum Geologists (AAPG), which are also involved in classification, presented a new classification of petroleum resources in 2000 that includes the total resources. This is the classification we have worked on and harmonized with the UN's classification of coal and minerals from 1997. In addition, the new Russian classification system, which entered into force at the beginning of the year, has been important," says Per Blystad.

The NPD developed its own classification system throughout the 1980s and 1990s. This system focuses on the maturity of the resources in relation to development and recovery of the petroleum volumes and is well-suited for making analyses of the total petroleum resources. The same maturity principles are the basis for SPE's, WPC's and AAPG's classification The NPD adjusted the Norwegian system to conform with this in 2001. Norway therefore has a system that is closest to the new international classification system. All operators annually report their estimates of petroleum volumes in fields and discoveries to the NPD in accordance with this classification system.

Three-dimensional system

"The Norwegian system is organized along a time axis that reflects decisions that must be made to bring a discovery up to development and production. This has served us well. The UN system is three-dimensional: It has one axis that reflects the economic and social dimension, one axis that reflects the industrial dimension and one axis that reflects the geological dimension, i.e. how well we know the geological and geotechnical properties and conditions of discoveries and fields. It is all based on commonly accepted principles that we find in most systems, but the UN system is more explicit, direct and thus simpler. This structure also enables us to harmonize our own system with the UN system. In Norway for example we would choose the industrial axis, while the Russian would choose the geological axis. Those who use the USA's classical McKelvey classification will relate to both the economy and geology axes," says Blystad.

"In the work for a secure supply of fossil fuels, including petroleum, it is important to have the best possible overview of the natural resources, and particularly the characteristics that are important to take into consideration in order to achieve effective, environmentally friendly and safe recovery. A uniform classification system is also important to obtain the best possible data basis for assessing the total volumes of oil and gas. Lack of this is one of the reasons why there is so much uncertainty and disagreement on how much oil and gas there is and how long we can expect to have access to these resources. Our contact and cooperation with the International Accounting Standards Board (IASB) is also important. From 2005, this board will work on developing new rules for stock exchange reporting from so-called extractive industries. This also includes the petroleum industry. IASB is very interested in the UN classification and might use this as a basis for its new regulatory requirements if it meets their needs. This is a major challenge and if we succeed it may have an impact on what and how the companies report to the public in the future."

"As far as the NPD is concerned, it has been exciting to participate in the process of developing a system that will be an international standard. We feel we have been able to contribute in a good manner by communicating our experiences. This has also given us an important contact network. The NPD is using its own system for the time being. In this manner we can test our own system in another context and can employ our experience from the use of the UN system to also improve our own," Per Blystad emphasizes.
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