Reserves Question

For a moment, lets just go back to basic definitions per SEC in USA.

1P Reserves:
"Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time."

There are all sorts of discussion going on about how to recognize PUD (mostly because of shales plays), but let's just focus on PD portion of 1P. The above paragraph has a reference to "economically producible—from a given date forward, from known reservoirs, and under existing
economic conditions, operating methods, and government regulations"

"Economic" has the simple definition of "Positive NPV at a selected hurdle discount rate"

"Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions"

The SEC mandates NPV10. The average price for prior 12 mth period for WTI is $94.99 (you can get that from Ryder Scott website) which is the number that will be used for 2014 Reserves reporting - which is a real blessing for if they were forced to used front month (as it the past) then a lot of Reserves would vanish - because they would not show a +ve NPV10.

Bankers on the other hand, may decide to do their own determination. I think the larger the company the less likely that would be because of the complexity of diverse operations.

The question would/should be "At what price per barrel does the SEC Reserves NPV10 calculation turn negative?"

I hold LNR and at the end of their investor presentation there is the following (the bolding is mine):
"Commodity Pricing Used: Lonestar’s reserves and PV‐10 have bee estimated using index prices determined in accordance with US SEC pricing guidelines for oil and natural gas, without giving effect to derivative transactions, and were held constant throughout the lift of the properties. The unweighted arithmetic averages of the first‐day‐of‐the‐month prices for the year ended December 31, 2013 were $96.94 per bbl for oil and $3.66 per mmbtu for natural gas and for the year ended December 31, 2012 were $95.05 bbl for oil and $2.78 per mmbtu for natural gas. These prices were adjusted by lease for quality, energy content, regional price differentials, transportation fees, marketing deductions and other factors affecting the price received at the wellhead."

I asked LNR this morning.