November 2009 issue
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THE GEO BEAT
The Seasons of Geoscience
BY TOM SNEDDON, P.GEOL.
APEGGA Manager, Geoscience Affairs
Another summer field season has blown by. As we all wait to find out if there will be a winter field season, it might be worth pondering what is in store for our boom/bust-afflicted profession.
One thing we know for sure — our responsibilities to the public are paramount and we need to ensure that everyone who uses the information we wring from field data is reliable.
It is axiomatic that professional geoscientists speak and seek the truth. For example, Rules 3 and 5 of our Rules of Conduct require APEGGA professionals to act with integrity, honesty, to be fair and objective; and to uphold the honour, dignity and reputation of our professions; and to serve the public interest.
As noted before in this column, this is a tall order and very difficult for us mere humans to observe to the letter. Professionals are all too human and subject to the usual foibles, frailties and faults. We do, however, try to observe these fundamental principles.
Minor infringements may not always be forgivable, as in answering the questions, “does this dress make me look fat?” or “do you always drive the speed limit?” But they do happen in all lives.
Further, we Earth scientists love to gossip and sometimes the line between minor and major infringements is transgressed. Take the following as a real-life case in point, quoted from the April 2009 Oilweek magazine, Analogue Spies in a Digital World, by Paul Stastny.
“. . .Murphy Oil and two partner companies had invested millions into exploring and testing the huge Ladyfern gas find in British Columbia. Before their results were made public, Predator appeared out of the blue to bid on Crown land bordering the Ladyfern field.
“Murphy Oil smelled fish and hired an investigator to look at how such a small company was suddenly willing to put down tens of millions of dollars for this land. As it turned out, an engineer contracted by Murphy Oil to do the pressure-data testing was a friend of an engineer at Predator. With a bit of maneuvering, the test results changed hands.
“Murphy Oil successfully sued, arguing that Predator had acquired the information based on the misuse of confidential data. In her judgment, Justice R.E. Nation stated, ‘Any use of the information against the owners´ interest is wrongful.’ For oilfield scouts and energy companies that were paying attention, it was difficult to ignore that a lot of scouting was precisely about acquiring information for use against the owner’s interest. . .”
While the protagonists in this drama were engineers, they could easily have been geologists or geophysicists. We all hold various corporate secrets between our ears (and often in boxes in the basement), and the ethics of drawing on it in conversation often don’t really occur to us.
The temptation is pretty intense to blather on about an excellent well location or mineral showing that management decided not to pursue (fools!), which is on ground that may soon come up for grabs again. Even more intense temptation arises from an offer from Company B to let it in on the secrets Company A holds on a property.
One of the most important changes to our operating environment — one that has strengthened our position as wealth creators for society — was the publication of the two sets of rules for disclosure of resources and reserves held by Canadian public companies or foreign companies registered in Canada. In 2002, Canada decided to move from rules-based resource and reserve estimate disclosure to a principles-based protocol.
Deregulation of the securities industry required some kind of relaxation in rules that allowed for advances in geoscience and engineering technology and knowledge gained by practitioners without having to gazette a whole new set of rules to allow for each advance. The outcome from that process is now firmly entrenched in the way companies do business.
The principles referred to are the fundamental rules of physics, chemistry and geology of reservoirs and what was once referred to as “ore bodies,” a much-abused and imprecise term. The goal of the policy is to protect investors from unscrupulous speculators and provide reliable information on the holdings of companies seeking financing for advancing their projects to investors.
The codification of the disclosure policies is known by their serial numbers as assigned by the Canadian Securities Administrators (CSA) as National Instruments (NI) 43-101 (for mining issuers) and 51-101 (for publicly traded oil and gas companies). Briefly, these two documents set the ground rules for telling the investing public what the in-ground assets owned by public companies are in terms of masses of commodities in nature’s inventory. The values of those commodities are a different issue, which we will look at another time.
In the oil and gas branch of our business, the NI51-101 requirements spawned the Canadian Oil and Gas Evaluation Handbook, which provides guidance on how to apply the first principles of geoscience and petroleum engineering to determination of the nature and extent of reservoirs and how to ascertain the volumes and masses of marketable fluids. This is not a cookbook — rather it is the accumulated wisdom of our professions on how to approach the problem and how to assess available methods for measuring resources. It also provides more precise definitions of commonly used terms and phrases.
The Canadian Oil and Gas Evaluation Handbook was first published in 2002 (the second edition came out in 2007) by the Society of Petroleum Evaluation Engineers, Calgary Chapter. To some extent it is based on the CIM Monographs on Determination of Oil and Gas Reserves, which were first published in 1994.
The Canadian Society of Mining, Metallurgy and Petroleum publishes a number of handbooks that are analogous to the Canadian Oil and Gas Evaluation Handbook, but for precious metals and base metals.
The CIM also created an approach to valuation known as CIMVAL, which provides guidance on the principles behind estimating the current and future values for metals deposits and properties. CIMVAL is loosely based on approaches used in South Africa and in Australia. At the moment, there is no equivalent for oil and gas practice.
Coal resource estimates follow principles established by the Geological Survey of Canada in A standardized coal resource/reserve reporting system for Canada, Hughes, J D; Klatzel-Mudry, L; Nikols, D J. Geological Survey of Canada, Paper 88-21, 1989; 17 pages.
The grand objective of these policies and publications is to ensure that the great mining and oil and gas scandals of the past do not recur and that the reliability of advice provided by members of our professions is assured. APEGGA issued its Practice Standard for Evaluation of Oil and Gas Reserves for Public Disclosure in April of 2003 to confirm the “level of performance expected of APEGGA members.”
Your humble scribe attended a workshop in Houston in September that dealt with the version of principles-based disclosure embraced by the United States Securities and Exchange Commission. Not too surprisingly, the new commission disclosure rules that came into force on Jan. 1, 2009, look a lot like the Canadian rules adapted for use by the U.S. Stay tuned for the story that comes out next year on the first attempt by the resource industries in that jurisdiction to apply the principles to their operations as well.
With November comes freeze-up and I sincerely hope all of you are busy again exploring, developing and bringing sorely needed resources to market.