Form 10-K: Dingo Gasfield only 18 Bcf NOT 30 Bcf as reported by CTP!, page-12

karll,

Resources are based on volume, Reserves are based on value. Reserves are defined as the amount of gas that is economically extractable.

In a highly profitable field, like a Qld CSG sweet spot, those two numbers may not be too different and the Reserves may be limited more by technical considerations (how much you can actually get out of the ground) than price. Those Reserves won't change as much over time.

But in a marginal field, the sale price is close to the cost of production, and that cost is a curve. Over time, it becomes more expensive to produce the remaining reserves due to lower flow rates, extra capex, etc. At some point, a field becomes uneconomic and is shut down - at that point, all the gas produced to that date is the true Reserves volume of that field.

In the case of Dingo, let's say the cost of production starts at $2.50/GJ and increases to $5/GJ by the time we reach 30 bcf extracted.

In 1996, the gas price might have been $3/GJ. Now it's more like $5/GJ. So in 1996, it was only economic to produce the first little bit of Dingo, but once production costs increased from $2.50 to $3, they'd reached the economic limit. Maybe they only produced 10 bcf by that time.

But at $5 gas price, it's economic to produce the entire 30 bcf, so your Reserves at $5 are 30 bcf while in 1996 your Reserves were only 10 bcf.

Congratulations, you just magically made 20 bcf suddenly appear in the ground! More importantly you tripled your Reserves without drilling a single metre.

Obviously it's more complicated that this because production costs change over time too, so that needs to be taken into account. So does your capex - paying off capex costs in only 10 bcf of production is a lot more expensive per bcf than paying it off in 30 bcf. But as long as the increase in gas price is more than the increase in cost, your Reserves will go up.

Another thing that complicates things is that you can only have Reserves when you have a market. So if you have a contract for 10 bcf, then you only have 10 bcf of Reserves, even if you can economically produce the entire 30 bcf. So that's another way to magically increase your Reserves - sign a new gas contract.