A Comparison between the DONG Energy Reserves/

Resource Classification System and the UNFC-2009 System

UNFC, London, 7th February 2011(Previously given at IQPC, London, 7th October 2010)

Prepared by J. Christensen & J. Reffstrup, DONG Energy

2

Introduction – DONG Energy

Classification Systems/Procedures

Example

Close out

3

Exploration & Production

Exploration & Production explores

for and produces oil and gas. The

activities are focused in the waters

around Denmark, Norway, the UK

(West of Shetland area), the Faroe

Islands and Greenland

OIL AND GAS PRODUCTION

24 mio. boe

OIL AND GAS RESERVES (2P)

364mio. boe

EBITDADKK

3.4billion

40%

End 2009

4

Generation

Generation produces power and

heat from efficient, flexible power

stations and renewable energy

sources

Generation is a market leader in

the construction and operation of

offshore wind farms and clean coal

technology

POWER GENERATION

18,074GWh

HEAT GENERATION

46,686 TJ

EBITDADKK

0.9billion

10%

End 2009

5

Energy Markets

Energy Markets optimises DONG

Energy’s energy portfolio, forming

the link between the Group’s

procurement and sale of energy.

Energy Markets sells gas and

power to wholesale customers and

trades on energy exchanges

GAS SALES

102,436 GWh

POWER SALES

10,723 GWh

EBITDADKK

2.0billion

24%

End 2009

6

Sales & Distribution

Sales & Distribution sells gas,

power and related products to

private customers, companies and

public institutions in Denmark,

Sweden and the Netherlands.

Sales & Distribution operates the

gas distribution network and power

grids, gas storage facility and oil

pipeline owned by DONG Energy

in Denmark.

GAS SALES

21,756 GWh

POWER SALES

8,529 GWh

EBITDADKK

2.2billion

26%

End 2009

GAS DISTRIBUTION

9,966 GWh

POWER DISTRIBUTION

9,156 GWh

Exploration & Production – Facts

The activities of this business area focus on

oil and gas exploration and extraction in

Denmark, Norway, the UK (West of

Shetland area), the Faroe Islands and

Greenland

This business area includes a stake in

Gassled, which comprises the entire gas

pipeline network from the Norwegian fields

to continental Europe and the UK

At the end of 2008, DONG Energy was

participating in 62 exploration and appraisal

licences and 13 production licences

The growth strategy for this business area

is based on continuous oil and gas

exploration. DONG Energy therefore

participates actively in licensing rounds

within this area of activity

7

")

")

")

")

Projection: Mercator (world) [not to scale]

Gas Pipeline

Oil Pipeline

Multi Phase Pipeline

Gas

Gas Condensate

Oil

Oil & Gas

DONG Energy fields in production – Denmark and Norway

8

Lulita

Dutchshelf

56o

2o

4o

Britishshelf

Norwegianshelf

DanishshelfGorm

Tyra

Ekofisk

to Teesside

Harald

to Nybro 260 km

to Fredericia 330 km

to Nybro 235 km

58o

Dan

to Den Helder 360 km

Ula Gyda

Tambar

Siri NiniCecilie

Syd Arne

Germanshelf

Stine Segment-2Stine Segment-1

Ormen Lange

Fields in Production

Name Operator

Siri / Stine: DONG E&P (50%)

Nini: DONG E&P (40%)

Nini East: DONG E&P (40%)

Cecilie: DONG E&P (22%)

Syd Arne: Hess (34.4%)

Lulita: Maersk (43.6%)

Ula: BP (15%)

Gyda: Talisman (34%)

Tambar: BP (43.2%)

Alve: Statoil (15%)

Ormen Lange:Norske Shell (10.3%)

Alve

Nini East

9

Introduction – DONG Energy

Classification Systems/Procedures

Example

Close out

DONG Energy Project ModelProject Categorisation

Most E&P projects are Category A

project according to the DONG E&P

Project Model i.e. Capex > 500 mill

DKK

It is mandatory that 'A' projects pass

through all decision gates

For each phase/gate a list of

mandatory deliverables are defined by

the Project Model

10

A

B

C

Bu

dg

et,

Ris

k,

Str

ate

gic

im

po

rta

nt e

tc.

CAPEX

Investment in mill dkk

5005010

The CVP is DONG E&P's decision-making process for investment projects

Project Work Processes are aligned with the requirements of the CVP process

11

DONG Energy Project ModelDONG E&P Capital Value Process (CVP)

Capital Value Process (CVP)

ExecutionConcept

selectionFeasibility

study

Preparation for

ExecutionBusiness planning

I P E Cl I P E Cl I P E CIE I P E Cl

Controlling Controlling Controlling Controlling

Initiating Planning Executing Closing

DG1 DG2 DG3 DG4 DG5

Operation

Technology Implementation

Project Controls

Procurement

Enabling Processes

Well Delivery

2

3

4

5

6

AppraisalExploration DevelopmentLicense

CaptureDevelopment AbandonmentProductionDevelopment

E&P Business model

E&P

Project Model

Support Processes

1

Handover to Operations

Class 5

Technical Contingent

Resources

Class 4

Commercial Contingent

Resources

Class 3

Reserves

Class 6

Prospective

Resources

Discovery

Well

Preliminary

Evaluation

NPV > 0 for base

case

Development < 8

years

Full Evaluation

NPV > 0 for 2P

Reserves

and

NPV => 0 for 1 P

Reserves

Development < 5

Years

Increasing Maturity

DONG Decision Gates for Approving Resources/Reserves

DG2

After DG3

before DG4

12

The E&P Field Development Model

13

NPV > 0 for base case

Dev. < 8 years

NPV > 0 for 2P

NPV => 0 for 1 P

Dev. < 5 Years

Budget

Approval

Wells on

Production

Discovery

wellPDO started

PDO agreed

with

partners

Project Model FeasibilityBusiness

Planning

Concept

Selection

Preparation for

ExecutionExecution Operation

DG1 DG3DG2 DG4 DG5

Resource Classes

Class 5 (5a, 5b)

Technical Contingent

Resources

Class 4

Commercial Contingent

Resources

Class 3

Reserves

Class 6

Prospective

Resources

Class 2

Reserves

Class 0+1

Reserves

Value Chain

ExploreAppraisal

DevelopmentDevelop Produce

AppraisalExploration

Gatekeeper TOP TOP TOP TOP Country

Project Responsible

Exploration Country CountryTOP/PS&E

DONG Energy Procedure of Resources and Reserves ClassificationWe apply SPE PRMS

14

L

DG4

DG5

DG1

P1

P3,A

1

2

3

4

5

Gate Class

6+

UNFC-2009

15

UNFC 2009 Classification

Mapping of UNFC-2009 upon the DONG Classification System

16

Business Planning

Feasibility ConceptPreparation

for ExecutionExecution Operation

DG1 DG2 DG3 DG4 DG5

Capital Value Process (CVP)

Business domain Project domain Operations domain

Initiate ClosingExecutingPlanningInputs Outputs

Controlling

Project Integration Process

Technology Implementation

Project Controls

Procurement

Enabling Processes

Well Delivery

Support Processes

2

3

4

2

5

2

6

1

DONG Energy System

Decision Gates : L-P1,P3 DG

Reserve/Resource Class : 6 5 4 3 2 1

UNFC-2009 System

Classes : E 3 3 3 2 1 1

F 4,3 3,2 2 2 1 1

G 4,3-1 3-1 3-1 3-1 3-1 3-1

G 4,3 3 2 2 1 1

Possible further definition of G-axis would benefit Exploration

(low, high cases not easily mapped clearly)

DONG Energy class 6+ 6 5

UNFC F-axis 4 3 3 3,2

G-axis 4 4 4 3-1

Exploration

Development

Examples of Final Calculations

17

Business Planning

Feasibility ConceptPreparation

for ExecutionExecution Operation

DG1 DG2 DG3 DG4 DG5

Capital Value Process (CVP)

Business domain Project domain Operations domain

Initiate ClosingExecutingPlanningInputs Outputs

Controlling

Project Integration Process

Technology Implementation

Project Controls

Procurement

Enabling Processes

Well Delivery

Support Processes

2

3

4

2

5

2

6

1

TIME

RA

TE

0

10

20

30

40

50

60

70

80

90

100 hyperbolic

decline

enveloped by:

harmonic

exponential

Supported by other tools !

EUR=RF*HIIP

HIIP=Volume*Porosity*Sh*FVFEUR=Estimated Ultimate Recovery

HIIP=Hydrocarbon Initially In Place

RF=Recovery Factor

Sh=Hydrocarbon saturation

FVF=Formation Volume Factor

Based on

Production data

DCA

Static & Dynamic Modelling

(large models)

Small models

18

Introduction – DONG Energy

Classification Systems/Procedures

Example

Close out

General – Concept Technical Screening

19

Many WOS discoveries/prospects are deeper than 300 m

002206

205

210

209

208214

003

218217

001

219

61076106 6105 6104

0034

62026207

6206 6205 62046203

6007

211

204

6201

00306006

213

207

6005

164 009008165 166 007202

6202

203 005

216

6208

006

176

6103

6004

0025

6108

0033

175

222

6203

6008

630263036304

174

6305 221

220

6306

6200

63016307 223 63006302

63016308

0029

163

6201

0024

0035

010

004

6303

212

173

215

The Shetland Islands

The Faroe Islands

DONG E&P acreage in the UK and Faroese shelf (WoS)

20

West of Shetlands (WOS)

Key Characteristics

Hostile environment

Deep water, wind, waves, current, cold

water temperatures

Distant from gas market

High development cost

No direct gas pipeline access to NTS

Diverse partnerships

2 Tcf discovered gas

Up to 2 Tcf upside on discovered

resources

Up to 4 Tcf of undiscovered potential

21

West of Shetlands (WOS)

Key Characteristics

Hostile environment

Deep water, wind, waves, current, cold

water temperatures

Distant from gas market

High development cost

No direct gas pipeline access to NTS

Diverse partnerships

2 Tcf discovered gas

Up to 2 Tcf upside on discovered

resources

Up to 4 Tcf of undiscovered potential

22

23

Example – Field

24

Dong Energy UNFC-2009

Class 5 low 221

Class 5 mid +122 (& 222)

Class 5 high +123 (& 223,233)

Classification

depending on

commercial

status

low case define classification

status in DONG System for mid/high cases

('112' not possible without '111')

Business Planning

Feasibility ConceptPreparation

for ExecutionExecution Operation

DG1 DG2 DG3 DG4 DG5

Capital Value Process (CVP)

Business domain Project domain Operations domain

Initiate ClosingExecutingPlanningInputs Outputs

Controlling

Project Integration Process

Technology Implementation

Project Controls

Procurement

Enabling Processes

Well Delivery

Support Processes

2

3

4

2

5

2

6

1

Example – Field – Exploration

25

Dong Energy UNFC-2009

Class 6 low 334

Class 6 mid 334

Class 6 high 334 (or 234)

Classification

very similar for

DONG

Exploration

projects

Geological definition less well defined,

making ranges (high & low) difficult to show clearly

This is currently being looked at via the UNFC Task Force specification work

N

Example – Field – Discovery

26

Dong Energy UNFC-2009

Class 5 low 331

Class 5 mid +332

Class 5 high +333 (or +233)

Classification

options suiting

well for DONG

development

projects

N

DONG Energy Volume booking process is closely linked the Company Project

Model

The company system can be mapped onto the UNFC 2009 system with no major

modifications

No major differences in booking numbers within major categories between the

system for the examples used

Some differences between the DONG System and UNFC-2009 with respect to

Exploration

The 3 dimensional (UNFC) system is generally considered more difficult within

the company.

UNFC 2009 is well suited for better comparing volumes between different

systems (companies or national) - although not shown in this presentation

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Thank you for your attention