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Reserves Reporting

Reserves Reporting for the Mineral/Royalty Interest Owner

Reporting proved reserves for mineral and royalty interests is somewhat different from reporting reserves for operating working interests. The differences fall into two broad areas: less engineering data and an inability to directly control development operations.

Engineering Data

Due to the terms of most leases, the mineral/royalty interest owner is almost never entitled to all of the data that the operator gathers in the course of drilling and operating the wells. Here are some examples of important data sources that the mineral/royalty owner generally does not have access to:

• Seismic data
• Well logs
• Fluid analyses
• Core analyses
• Geologic maps
• Reservoir pressure data

Because of this, the mineral/royalty interest owner is generally not able to use the volumetric or reservoir simulation methods for estimating reserves. In general, this lack of engineering data means that the mineral/royalty owner can often only rely on performance methods for reserves estimates, and, by definition, these methods can only be used to estimate PDP reserves.

Control of Development Operations

This issue relates mostly to the booking of undeveloped reserves. Even if the mineral/royalty interest owner has sufficient engineering and geological data to support an estimate of undeveloped reserves, his non-cost-bearing interest generally makes it impossible for him to control whether and when the necessary capital investments will be made to develop these reserves. The SEC requires that undeveloped reserves have a reasonable plan for development, and that the party who books the reserves can influence the execution of the plan. However, the mineral/royalty interest owner does not generally exercise control over the development plan, so he rarely can book undeveloped reserves. This is another reason why almost all of the reserves associated with EROC's mineral and royalty interests will be classified as PDP.