SPE 144383

A Practical Solution for Booking PUD Reserves in a Resource Play Using

Probabilistic Methods
Dobson,M.L., and Lupardus,P.D., and Divine,T.W., Chesapeake Energy, McLane,M.A., Rose & Associates LLC

Copyright 2011, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE North American Unconventional Gas Conference and Exhibition held in The Woodlands, Texas, USA, 14–16 June 2011.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been
reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its
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Abstract

A practical probabilistic method is presented to administer the evaluation of proved undeveloped (PUD) oil and gas
reserves in resource plays. In 2009, the Security and Exchange Commission (SEC) adopted revisions to the oil
and gas reporting rules which allowed for the opportunity to use probabilistic methods in the evaluation and
disclosure of PUD locations that are more than one spacing unit away from existing production. The revisions to
the “Modernized SEC Rules” created a need for improved methods to evaluate and disclose probabilistic reserves.
The objective of this paper is to present a new and practical probabilistic method for PUD reserve reporting that
addresses the SEC requirements. The paper addresses the issues of proved reserve volumes per PUD location,
proved well spacing, and “sweet-spots”.

The useful method may be applicable to a broad range of subjects, such as professional expertise, individual
ownership positions, and geologic play situations. The figures and principle steps of the method are presented
using the Fayetteville Shale as an example. The method was developed specifically to comply with the Modernized
Rules, to be consistent with statistical principles, and to accommodate ownership situations while maintaining an
expectation of being practical to use.

The first paper (Dobson 2011) in this series of three introduced a new method of describing the proved area in a
resource play. The third paper will present a practical justification for this probabilistic approach. In this paper,
historical production statistics are used to evaluate the method’s ability to comply with reasonable certainty in a
forecast at specific PUD locations.

Introduction

Over time, numerous probabilistic methods for reserve estimation have been presented. The parametric method
(Smith 1993), decision tree analysis, influence diagrams (Schuyler 1998), and modified deterministic methods
(Patricelli 1995) all present probabilistic solutions. Monte Carlo simulation based methods (Hall 2007, Mata 1997,
Moore 1999) might be considered as the traditional industry favorite.

Establishing the basis of the Monte Carlo calculation generally consists of analyzing a best fit probability
distribution function (PDF) for net pay, water saturation, recovery factor and other geologic variables. The terms
are combined through a volumetric calculation and Monte Carlo simulation to estimate both the original in place
and the recoverable volumes at various probability percentages.
Monte Carlo simulation output is displayed in the form of a cumulative frequency plot. Values representing any
probability can be read from the frequency plot. This approach has been shown to be a reliable technology to
estimate recoverable hydrocarbon volumes at a field or geologic feature level and seems to fit the intended
description of probabilistic reserve evaluation.

Each method has inherent strengths and drawbacks and each method will create solutions that constitute a
respectable probabilistic approach to reserve evaluation. The shortfall with the use of methods that calculate a
2 SPE 144383

single volume estimate for the play is that the “answer” provided by those methods is at the field or play level
instead of the individual PUD location level. The field or play level answer is functional if the field is either unitized
or owned 100% by one operator. However, it is insufficient in the calculation of net economically producible
reserves when there is variable ownership, variable marketing, or commercial terms.

While working through specific field cases for resource plays, we observed that although reserve volumes can be
estimated for a field, it is unclear how to divide that volume into appropriate capital projects in order to build an
economic model for each PUD location. Creating an individual economic model for each PUD is critical to the
calculation of economically producible reserves. Likewise, the Monte Carlo simulated reserve volume fails to
establish the proved well spacing density and capital commitment contingent on that spacing. Since both well
spacing and the PUD economic model are required to estimate economically producible reserves for a resource
play, reserve volumes also need to be determined for specific PUDs. Due to these issues, traditional Monte Carlo
methods are beneficial as a check for the reasonableness of another method’s answer but are insufficient for
resource play PUD reserve estimation.

Companies disclosing PUD reserves to the SEC are required to report their net economically producible reserves.
A critical step in developing the required report involves running the economic model. Inputs for the model include
a production schedule, the associated business conditions such as product prices, capital expense, operating
expense, and working and net interest. Individual inputs are needed for each PUD well location in order to enable
the economic model to properly reflect the economically producible reserves. The economic model calculates the
net economically producible volume for each individual project. The aggregation of the individual projects net
reserve volume to the level of field or play results in the reportable volume. Determining a company’s net
economically producible PUD reserves for the assets in a play requires the successful use of detailed economic
models.

Production Statistics
In an established resource play, PDP production statistics, such as EURs, IPs and decline analysis value, are in
abundant supply, form the basis of a statistical dataset and serve as the most direct measurement of economic
producibility. Production statistics from current producers that exist in sufficient quantity and spatial dispersion
form the most reliable probabilistic basis from which to forecast the eventual outcome of future projects. The PUD
projects must be in the same geologic analog (GA) as the PDP wells. These projects are in the same GA if they
share the same geological formation, environment of deposition, geological structure, and drive mechanism.
Additionally they should share a common completion and production method(s) paradigm. Under these conditions,
stochastic analysis of the PDPs can provide a reliable
prediction of PUD performance with reasonable certainty
(SEC 2008).

Problems associated with the assignment of a single

volume, reservoir based estimate are illustrated in the
following example. When production units differ
significantly in size, working interest, or other business
conditions, the economically producible reserves are also
significantly different.

Map 1 shows Unit A, Unit B and Unit C with wells drilled

into the same geologic analog. Well lateral length varies
between units due to the size and shape of the units.
Working interest varies between the units as a result of
land leasing royalty terms. Company Q owns a 65% net
revenue interest in Unit A and only a 10% net revenue
interest in Unit C.

While the units are from the same geologic analog the net
Map 1—Lateral length opportunity due to unit configuration 
EUR reserve volumes available for company Q to report
are significantly different for the three units. In the
example, well performance is calculated to be 885
mcf/FT. The average well lateral length for company Q in Unit A is 3500’ yielding 3.1 BCF per well gross and 2.0
BCF net. Meanwhile, the average well length in Unit B is 2000’ and the gross reserves are 1.8 BCF per well and
only 0.18 BCF net per well. Assignment of reserves based on a volume per well would yield incorrect results
SPE 144383 3

reserve reporting.
If we appropriately measure and analyze the conditions that create performance results from existing PDP wells,
we can use the empirical relationships from that analysis to predict the future results of a similar condition at the
well and unit level. This allows for individual PUD booking estimates at specific locations and ownership situations.
The Proved Area

This paper presents a solution for the booked value at individual PUD locations under the variable business
conditions typically found in a resource play. A brief review of the steps from Paper one, “A Practical Solution to
Describe the Proved Area within a Resource Play Using Probabilistic Methods” (Dobson 2011), are useful in order
to tie the proved area concept into the current subject.

1. Establish the appropriate geologic analog;

2. Quality check the production statistic data by mapping, creating reverse cumulative frequency plots of the
data and further evaluating the extremes of the distributions for erroneous data and / or changing
conditions;
3. Conduct the exclusive concentric radii analysis;
4. Create maps for each seed set and clip the polygon of the proved seed area to the outer most PDP that is
still contiguous in the proved area;
5. Overlay the clipped polygon of each of the seed sets,
6. Use the clipped polygon montage to describe the multiple times proved area of the play.

It is necessary to complete the proved area steps prior to continuing with the evaluation to solve for the appropriate
PUD booking value. Stochastic PUD booking is limited to the proved area described in Paper one. PUDs outside of
the proved area are evaluated by traditional “deterministic methods”.

Additional discussion about aggregation, empirical analysis and statistical tools are presented in Paper one and will
not be repeated here. We generally use the term EUR/FT throughout the PDP analysis. Estimated Ultimate
Recovery (EUR) is calculated per PDP well from either decline curve analysis (DCA), simulation, analytical
techniques or a combination of methods. Effective lateral length is calculated as the distance between the most
distal and proximal perforations of the wellbore. This length is represented by FT in the EUR/FT term, while EUR
units are in mcf. For simplicity we standardized on EUR/FT for this presentation; however, other analyses do not
need to be limited to just EUR/FT. Noting that the technique presented in the three paper series will also work in
vertical plays on a per well EUR basis instead of EUR/FT.

Throughout this paper we employ the same use of P^ defined in Paper one. P^ is calculated by averaging the
mean and the P50 of the data. In addition to calculating the P^ it is advised to routinely create and analyze the
cumulative frequency plots for the data to check for lognormality, extreme outliers, and changes in the P10/P90
ratio that would impact the analysis. For sample counts greater than 50, the sum of the P^ values approximates the
aggregated Monte Carlo simulated P90 of the sample and is a reliable and practical measure to compare datasets
(Dobson 2011). The evaluator should develop a clear understanding of aggregation and sample size to effectively
use the techniques.

Proved Well Spacing

We begin the PUD book value analysis with an assessment of well spacing. The first well spacing analysis
compares the EUR/FT well performance for wells which are grouped by well density per section. The analysis in
Figure 1 shows an example where PDP sections with one well per section are grouped together, two wells per
section are grouped together and so on up to ten wells per section.

The groups are plotted by increasing well count as a function of EUR/FT P^ for each group. We observe that the
P^ for one well per section (654 wells) is 616 MCF/FT and two wells per section (508 wells) is slightly better with a
P^ of 667 MCF/FT. Well performance with increasing well density until the peak of six wells per section (1007
MCF/FT @ 132 wells).
4 SPE 144383

A slight reduction in performance is observed for

seven and eight wells per section as compared to the
1200 70% peak of six wells per section. However, seven and
1007 967 967
eight wells per section still perform higher than five,

% Variance to Analog wells
1000 929
881
780 794 821 805
50% four, three, two or one well per section. All but one
800 and two wells per section perform better than the all
P^ EUR/FT

667 29%
654 24% 24% 30%
616
19% well case. Nine and ten wells per
600 508 13%
405 5% 3% 10%
400
2% 368 335 section perform approximately 19% less than the
‐14% ‐10% peak of six wells per section, yet still perform better
200 132 128
‐21%
49 54 than one, two, or three wells per section and
10
0 ‐30% approximately 4% better than the all well group. With
All Wells 1 2 3 4 5 6 7 8 9 10 a ten wells per section group we can conclude that
Wells Per Section the sample size is too small for stochastic analysis.
P^ EUR/FT Well Count P^ Variance
Since P^ for eight wells per section is 967 MCF/FT
Figure 1—Performance (P^ mcf/FT) of well groups as a function 
and the counts are sufficient to satisfy statistical
of well count per section, entire play. 
significance we are confident that development of
eight wells per section will achieve the expected
results with reasonable certainty. When compared to the all well P^ of 780 MCF/FT, we would not have statistical
support that well count greater than 9 resulted in reasonable certainty. The All Well data set is the benchmark
because it includes the full range of observed outcomes and all spacing densities.
Well spacing analysis in this play indicates that the sections with more wells generally perform better than the
sections with fewer wells. This has been one of the
more startling observations in the entire field study.

In addition to a numerical analysis, wells should be

posted on a map by well count per section (Map 2) to
confirm the spatial representation of the various well
density data sets.

Other spacing analysis is valuable to consider in the

evaluation if the tracking data is detailed and reliable.
Wells might be coded as they are drilled so that they
may be grouped and compared. Possible codes to
distinguish spacing include 2000’ foot offsets, 1000’
offset, two offsets within 1000’ feet, wells with at least
one within 500’ and wells with two or more offsets
  within 500’. PDP well spacing groups are then
compared in a similar way as the wells per section
Map 2—Wells colored by Well Count Density per section.  analysis.

Horizontal Azimuth

The play may be developed under various horizontal azimuth

patterns. Map 3 shows an example where the horizontal well
drilling azimuth is developed in various patterns. These
patterns include north to south horizontal laterals pattern in
some sections, 330 degree azimuth laterals, east to west
laterals, and across unit laterals. If there is a significant
difference in either the P^ performance of various patterns or in
the spatial distribution of the two groups, the planned PUDs
should also reflect the performance difference.

The evaluation is executed by grouping together the N-S

azimuth wells, the 330 azimuth wells, and so on, before
comparing the P^ from the various groups. The analysis is

Map 3—Horizontal well path, depicting N‐S and 330· 
azimuth for PDPs (circle) and PUDS (triangle) 
SPE 144383 5

similar to that of the well density plot. If P^ for the groups do not differ by more than 10% they are reasonably
certain to generate comparable results. In this case, the two groups may be treated as a single data grouping. If
they differ by more than 10% then the datasets for N-S and the 330° azimuth would be handled separately
throughout the remainder of the evaluation. As with all of the P^ comparison analysis the authors strongly
encourage evaluators to quality check the entire PDF for shape and size.

Sweetspot and Project Area Analysis

The stochastic proved area of a resource play, as it was presented in Paper one, is the area that can be described
empirically and that is reasonably certain (stochastically) of generating economically producible results. The
definition of the area does not suggest that every location is the same, but only that the area meets a minimum
standard where there is a “high degree of confidence” that the area will be economically producible due to geology
and production. The proved area might exhibit patterns or clusters of either greater or lesser production
performance also called “sweetspots”. Identification of sweetspot patterns is often initially recognized through
visual inspection of maps displaying various production data.

The objectives of spatial pattern analysis might be

to improve project selection, direct rig activity, or
address other priorities such as land acquisition.
Other spatial pattern analysis (Map 4) is often
pursued in order to understand what makes good
areas good and poor areas poor. However, in the
case of PUD booking, a spatial pattern analysis
serves to identify areas of similar production
performance with the opportunity to improve
accuracy.

The analysis may consist of cross plot

correlations, geospatial weighted regression and
other specialized computer software solutions.
The most defensible spatial analysis is supported
by correlations to geologic or engineering data
variables. The geographic areas exhibiting spatial
Map 4—Production Statistic (EUR/FT) shown as Inverse Difference 
patterns are called Project Areas. These Project
Weighted relationship map showing hotspots. Major fault layer is  Areas become the basis for the booked PUD
displayed showing the correlation to production performance.  reserve value within each.

One attempt to define Project Areas involved

cross plotting geologic variables as a function of
production statistics. These efforts generally resulted in
weak correlations that were ultimately insufficient for our
use in this play. The same analysis might provide the
best correlation for a different play. Another effort
involved visual inspection of maps posted with
combinations of geologic data and the production
statistic EUR (mcf)/FT. The best current spatial analysis
relationship for this play emerged when EUR (mcf)/FT
and a layer with the major faults were combined. Notice
that the fault lines generally trend northeast by southwest
and align with this production statistic spatial patterns.

In this example, some of the major faults have vertical

Map 5—Project Areas bounded by major fault systems, the  displacement of more than 500’. The faulting system
proved area and well control.  likely affects the reservoir pressure and formation
volume factor, compaction, porosity and permeability
which in turn impact production, drilling plans and capital
expense. The acreage defined by the faults is termed as
Project Areas.
6 SPE 144383

Project Areas one through four are outlined in Map 5

and all horizontal Fayetteville Shale wells within each
project boundary make up the group for the next step in
the evaluation.

Next, cumulative frequency plots are constructed for

each Project Area. The cumulative frequency plots
(Figure 2) for the four Project Areas (Map 6) exhibit
similar characteristics.

The curves are approximately parallel, and the P10/P90

ratios are similar (Table 1) for each Project Area and
are within a reasonable range (less than 5.0). Each
Figure 2—EUR/FT Cumulative Frequency plot displayed for  Project Area has sufficient well count to use stochastic
Project Areas one thru four.  techniques. The primary difference between the curve
for each Project Area is the P^ value.

Project Areas size is limited by the proved area, by well

control, and in this play, by the major faults. Defining the
Project Areas is not without some judgment and
interpretation. As more analysis is applied and more data
becomes available the Project Areas are likely to evolve
too. Data correlations used in an evaluation may be
superseded later by data or analytical improvements. This
is not dissimilar to any reserve estimate or reservoir
interpretation. They can and do change with more data
and time. When Project Areas are based on measureable
geologic and engineering data, and in conjunction with
production statistics performance data the Project Area
results are more robust.
Map 6—P^, and well count by Project Area. 

Well P^
PROJECT_AREA Count P10/P90 EUR/FT
PA 1 374 3.4 789
PA 2 527 2.9 1089
PA 3 301 3.0 869
PA 4 237 4.6 637
Total Play 1439 4.0
Table 1—Project Area summary for well count and P^ EUR/FT 

The next step in calculating the PUD reserve volume multiplies the effective lateral length of the planned PUD with
the P^ of the PDP analysis (Eq 1) from the respective Project Area. The product is the PUD EUR for the location.
This is the gross EUR used in the economics model.
A PUD Gross EUR reserve volume for a location in the PA 1 Project Area and a planned lateral length of 3800’ is
shown in Eq 1.

Eq. 1 Gross PUD Booking = LL ▪ Project Area P^ (EUR/FT)

3800 ▪ 789 2,998,200

The gross EUR 2.998 BCF reserve volume is assigned to the PUD economic model for that location and all
business conditions are also applied to the model for that location. The production schedule is adjusted to match
local conditions so that the assigned reserve is developed in the model. The model returns the net economically
producible reserve volume for that PUD.
SPE 144383 7

The procedure is repeated for each prospective PUD in the proved area. Aggregation of the individual PUD cases
returns the economically producible reserves that are reasonably certain of recovery for the probabilistically proven
area of the play or field.

The PUD location(s) must have a geologic and engineering drilling plan where the effective lateral length is
designed for the specific location. The lateral length must be supported by a stochastic analysis showing that the
likelihood of the planned lateral length(s) is reasonable.

Conclusions

A practical approach to book probabilistic PUDs has been presented. Probabilistic reserves in a resource play can
be assigned to individual PUD locations for economic producibility calculations. The method includes steps to
stochastically evaluate the PDP wells as an analog to forecast PUD locations in the same proved Project Area by
1. Establishing the stochastically proved well density (well spacing)
2. Evaluating the subset analog conditions such as horizontal azimuth
3. Evaluating spatial patterns or so called “sweetspots” for division to Project areas

The method describes the steps to calculate and assign stochastically proved reserves to individual PUD locations
for use in the economic model.

We remind the reader that each step of the method is subject to checks against other reliable methods such as
volumetrics, modeling, and recovery factor for reasonable answers. Other results analysis techniques will be
presented in Paper Three.
.

References
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SEC - Modernization of Oil and Gas Reporting, Conforming Version 2008. 17 CFR Parts 210,211,229,and 249
[Release Nos. 33-8995; 34-59192; FR-78; File No. S7-15-08]. US SEC, Washington, DC. (29 December 2008).
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