conducting-reserve-and-resource-analysis

name	conducting-reserve-and-resource-analysis
description	Evaluates mineral and hydrocarbon reserves with classification methodology, resource conversion rates, and valuation per unit analysis. Use when analyzing reserve reports, validating resource estimates, or assessing depletion profiles.
tags	["process","real-assets-and-natural-resources","valuation"]
metadata	{"author":"casemark","practice_areas":["Natural Resources","Energy Capital","Commodity Investment"],"document_types":["Process Documentation"],"skill_modes":["Process Management"]}

Conducting Reserve And Resource Analysis

Evaluates mineral and hydrocarbon reserves with classification methodology, resource conversion rates, and valuation per unit analysis.

When To Use

• Reviewing a Competent Person's Report (CPR), NI 43-101 technical report, or SEC-compliant reserve filing
• Validating proved/probable/possible (1P/2P/3P) reserve classifications prior to an acquisition or financing
• Assessing resource-to-reserve conversion ratios for mine-stage or field-development economics
• Building depletion schedules for NAV models on oil & gas or mining assets
• Benchmarking reserve replacement ratios, finding & development costs, or reserve life indices across a portfolio

Inputs To Gather

• Reserve/resource report — the third-party or internal engineering estimate (identify preparer, effective date, reporting standard)
• Commodity type — oil/gas (specify BOE conversion ratios used), hard-rock mineral, coal, or other
• Classification standard — PRMS (SPE/WPC), CRIRSCO-aligned code (JORC, CIM, SAMREC), SEC Subpart 1200, or NI 43-101 [VERIFY which standard governs the filing jurisdiction]
• Price deck — strip pricing, SEC trailing 12-month average, or operator forecast; note date and source
• Production history — at least 3 years of monthly production data if available; type-curve parameters for undeveloped locations
• Cost assumptions — OPEX per unit, CAPEX for development/infill, abandonment/reclamation obligations
• Fiscal terms — royalty rates, production taxes, PSC terms, or mining royalty/tax regime [VERIFY jurisdiction-specific rates]

Workflow

1. Identify the reporting framework and audit the classification

   • Confirm whether the report follows PRMS, JORC, CIM, SEC S-K 1200, or another standard
   • Map each category to a confidence tier: Proved/Measured → ≥90%, Probable/Indicated → ≥50%, Possible/Inferred → lower confidence
   • Flag any categories labeled "contingent resources" or "exploration target" — these sit outside reserves and must not be treated as bookable

2. Reconcile reserves to production history

   • Compare prior-year reserve bookings to actual production and revisions; compute the reserve replacement ratio (net additions ÷ production)
   • Identify technical revisions vs. price revisions vs. discoveries; large negative technical revisions signal estimation risk
   • For mining assets, reconcile mill feed grades against the block-model predictions to assess estimation bias

3. Evaluate resource-to-reserve conversion potential

   • Determine what fraction of indicated/probable resources can convert to measured/proved given planned development CAPEX
   • Assess modifying factors: metallurgical recovery, cut-off grade sensitivity, well-spacing assumptions, regulatory permits outstanding [VERIFY permitting status]
   • Assign a probability-weighted conversion rate (e.g., 60-80% for brownfield infill, 20-40% for greenfield exploration upside)

4. Build the depletion profile

   • For oil & gas: apply decline-curve analysis (hyperbolic/exponential) using fitted b-factor, Di, and terminal decline rate; cross-check against type curves for analogous wells
   • For mining: construct a life-of-mine (LOM) schedule from the mine plan, sequencing ore blocks by grade and strip ratio
   • Sensitize the profile to ±10-20% recovery factor or grade variation

5. Compute per-unit valuation metrics

   • Calculate in-ground value: commodity price × net revenue interest × recovery factor, less development CAPEX per unit
   • Derive NAV per proved BOE (or per recoverable ounce/ton) using a DCF at an appropriate discount rate (typically 10% for SEC PV-10)
   • Benchmark against recent comparable transactions ($/BOE, $/oz, $/lb in-situ)

6. Assess risk factors and flag uncertainties

   • Geological risk: structural complexity, fault compartmentalization, grade continuity
   • Regulatory risk: outstanding permits, environmental liabilities, indigenous land claims [VERIFY jurisdiction]
   • Commercial risk: price sensitivity (run breakeven at ±20% commodity price), infrastructure access, offtake agreements

Output

• Reserve summary table — quantities by category (1P/2P/3P or Measured/Indicated/Inferred), commodity, and asset/field, with effective date and reporting standard noted
• Depletion schedule — annual production forecast through reserve life, with key assumptions (decline parameters, mine sequencing, recovery factors)
• Valuation summary — NAV per unit at base, upside, and downside price cases; PV-10 or NPV at stated discount rate; comparison to market transaction benchmarks
• Conversion and replacement analysis — resource-to-reserve conversion assumptions, historical reserve replacement ratio, F&D cost per unit
• Risk register — itemized geological, regulatory, and commercial risks with [VERIFY] tags on jurisdiction-dependent items

Quality Checks

• Reserve categories match the definitions of the stated reporting standard — do not conflate contingent resources with proved reserves
• Price deck date and source are explicitly stated; SEC filings must use the prescribed trailing average [VERIFY current SEC pricing rule]
• Decline-curve or LOM parameters are cross-referenced against at least one independent data point (analogous field, historical actuals, or third-party audit)
• BOE conversion ratios are stated and consistent (standard: 6 Mcf = 1 BOE for energy equivalence; note if economic equivalence is used instead)
• All per-unit metrics use a consistent denominator (net vs. gross acres, WI vs. NRI volumes, recoverable vs. in-situ resource)
• Abandonment and reclamation obligations are included in NAV calculations — omission overstates asset value
• Any estimate carrying greater than ±30% uncertainty range is flagged for further engineering review