Page 282 - Annual Report 2020

6.4 Resources and Reserves

Resources are the estimated quantities of material that can Proved reserve estimates were attributed to future development
potentially be commercially recovered from BHP’s properties. projects only where there is a significant commitment to project
Reserves are a subset of resources that can be demonstrated funding and execution and for which applicable government
to be able to be economically and legally extracted. In order and regulatory approvals have been secured or are reasonably
to estimate reserves, assumptions are required about a range certain to be secured. Furthermore, estimates of proved reserves
of technical and economic factors, including quantities, qualities, include only volumes for which access to market is assured with
production techniques, recovery efficiency, production and reasonable certainty. All proved reserve estimates are subject
transport costs, commodity supply and demand, commodity to revision (either upward or downward) based on new information,
prices and exchange rates. such as from development drilling and production activities
Estimating the quantity and/or quality of reserves requires the or from changes in economic factors, including product prices,
size, shape and depth of ore bodies or oil and gas reservoirs to contract terms or development plans.
be determined by analysing geological data, such as drilling samples Developed oil and gas reserves
and geophysical survey interpretations. Economic assumptions used Proved developed oil and gas reserves are reserves that can
to estimate reserves change from period-to-period as additional be expected to be recovered through:
technical and operational data is generated. • existing wells with existing equipment and operating methods
• installed extraction equipment and infrastructure operational
6.4.1 Petroleum reserves at the time of the reserve estimate if the extraction is by means
not involving a well
Estimates of oil and gas reserves involve some degree of uncertainty,
are inherently imprecise, require the application of judgement and Performance-derived reserve assessments for producing wells
are subject to future revision. Accordingly, financial and accounting were primarily based in the following manner:
measures (such as the standardised measure of discounted • for our conventional operations, reserves were estimated using
cash flows, depreciation, depletion and amortisation charges, rate and pressure decline methods, including material balance,
the assessment of impairments and the assessment of valuation supplemented by reservoir simulation models where appropriate
allowances against deferred tax assets) that are based on reserve • for our Discontinued operations (Onshore US) reported for
estimates are also subject to change. FY2018, rate-transient analysis and decline curve analysis methods
How we estimate and report reserves • for wells that lacked sufficient production history, reserves
were estimated using performance-based type curves
Petroleum’s reserves are estimated as of 30 June each year. and offset location analogues with similar geologic and
Reported reserves include both Conventional Petroleum reserves reservoir characteristics
and Onshore US reserves for FY2018. Footnotes have been Proved undeveloped reserves
included with the accompanying tables to identify the contribution
of the Discontinued operations (Onshore US) for this period. The Proved undeveloped oil and gas reserves are reserves that are
sale of Petroleum’s interests in Onshore US reserves was completed expected to be recovered from new wells on undrilled acreage
in FY2019. Remaining reserves at the end of FY2019 and FY2020 where commitment has been made to commence development
reflect the Continuing operations only. within five years from first reporting or from existing wells where
a relatively major expenditure is required for recompletion.
Our proved reserves are estimated and reported on a net interest
basis according to the US Securities and Exchange Commission A combination of geologic and engineering data and where
(SEC) regulations and have been determined in accordance with appropriate, statistical analysis was used to support the assignment
SEC Rule 4-10(a) of Regulation S-X. of proved undeveloped reserves when assessing planned drilling
locations. Performance data along with log and core data was
Proved oil and gas reserves used to delineate consistent, continuous reservoir characteristics
Proved oil and gas reserves are those quantities of crude oil, in core areas of the development. Proved undeveloped locations
natural gas and natural gas liquids (NGL) that, by analysis were included in core areas between known data and adjacent
of geoscience and engineering data, can be estimated with to productive wells using performance-based type curves and
reasonable certainty to be economically producible from offset location analogues with similar geologic and reservoir
a given date forward from known reservoirs and under existing characteristics. Locations where a high degree of certainty
economic conditions, operating methods, operating contracts could not be demonstrated using the above technologies
and government regulations. Unless evidence indicates that and techniques were not categorised as proved.
renewal of existing operating contracts is reasonably certain,
estimates of economically producible reserves reflect only the Methodology used to estimate reserves
period before the contracts expire. The project to extract the Reserve estimates have been estimated with deterministic
hydrocarbons must have commenced or the operator must methodology, with the exception of the North West Shelf gas
be reasonably certain that it will commence within a reasonable operation in Australia, where probabilistic methodology has been
time. As specified in SEC Rule 4-10(a) of Regulation S-X, oil used to estimate and aggregate reserves for the reservoirs
and gas prices are taken as the unweighted average of the dedicated to the gas project only. The probabilistic based portion
corresponding first day of the month prices for the 12 months of these reserves totals 12 million barrels of oil equivalent (MMboe)
prior to the ending date of the period covered. in FY2020, 16 MMboe in FY2019 and 23 MMboe in FY2018. These
Proved reserves were estimated by reference to available well amounts represent approximately 2 per cent of our total reported
proved reserves in FY2020, FY2019 and FY2018. Total boe
and reservoir information, including but not limited to well logs, conversion is based on the following: 6,000 standard cubic feet
well test data, core data, production and pressure data, geologic (scf) of natural gas equals 1 boe. Aggregation of proved reserves
data, seismic data and in some cases, to similar data from beyond the field/project level has been performed by arithmetic
analogous, producing reservoirs. A wide range of engineering summation. Due to portfolio effects, aggregates of proved reserves
and geoscience methods, including performance analysis, may be conservative. The custody transfer point(s) or point(s) of
numerical simulation, well analogues and geologic studies sale applicable for each field or project are the reference point for
were used to estimate high confidence proved developed and reserves. The reserves replacement ratio is the change in reserves
undeveloped reserves in accordance with SEC regulations. during the year excluding production, divided by the production
during the year and stated as a percentage.

280 BHP Annual Report 2020