Drilling Locations
Proven Drilling Locations
We use production data and experience gained from our development programs to identify and prioritize this proven drilling inventory. These drilling locations are included in our inventory only after we have adopted a
development plan to drill them within a five-year time frame. As a result of rigorous technical evaluation of geologic and engineering data, we can estimate with reasonable certainty that reserves from these locations will be
commercially recoverable in accordance with SEC guidelines. Management considers the availability of local infrastructure, drilling support assets, state and local regulations and other factors it deems relevant in determining
such locations.
Unproven Drilling Locations
We have also identified a multi-year inventory of drilling locations that are not associated with proved undeveloped reserves but are specifically identified on a field-by-field basis considering the applicable geologic,
engineering and production data. We analyze past field development practices and identify analogous drilling opportunities taking into consideration historical production performance, estimated drilling and completion costs,
spacing and other performance factors. These drilling locations primarily include (i) infill drilling locations, (ii) additional locations due to field extensions or (iii) potential improved oil recovery and enhanced oil
recovery (EOR) project expansions, some of which are currently in the pilot phase across our properties, but have yet to be moved to the proven category. We believe the assumptions and data used to estimate these drilling
locations are consistent with established industry practices with well spacing selected based on the type of recovery process we are using.
Exploration Drilling Locations
Conventional – Our exploration portfolio contains unrisked prospective drilling locations in conventional reservoirs, the majority of which are located near existing producing fields. We use
internally generated information and proprietary geologic models consisting of data from analog plays, 3D seismic data, open hole and mud log data, cores, and reservoir engineering data to help define the extent of the targeted
intervals and the potential ability of such intervals to produce commercial quantities of hydrocarbons. Information used to identify exploration locations includes both our own proprietary data, as well as industry data
available in the public domain. After defining the potential areal extent of an exploration prospect, we identify our exploration drilling locations within the prospect by applying the well spacing historically utilized for the
applicable type of recovery process used in analogous fields.
Unconventional – We have unrisked prospective resource drilling locations identified in unconventional reservoirs based on screening criteria that include geologic and economic considerations and
limited production information. Prospective play areas are defined by geologic data consisting of well cuttings, hydrocarbon shows, open-hole well logs, geochemical data, available 3D or 2D seismic data and formation pressure
data, where available. Information used to identify our prospective locations includes both our own proprietary data, as well as industry data available in the public domain. We identify our prospective resource drilling
locations based on an assumption of 80-acre spacing per well throughout the prospective area for each resource play.
Well Spacing Determination
Our well spacing determinations in the above categories of identified well locations are based on actual operational spacing within our existing producing fields, which we believe are reasonable for the particular recovery
process employed (i.e., primary, waterflood or EOR). Due to the significant vertical thickness and multiple stacked reservoirs usually encountered by our drilling wells, typical well spacing is generally less than 20 acres and
often 10 acres or less in the majority of our fields unless specified differently above. These parameters also meet the general well spacing restrictions imposed on certain oil and gas fields in California.
Drilling Schedule
Our identified drilling locations have been scheduled as part of our current multi-year drilling schedule or are expected to be scheduled in the future. However, we may not drill our identified sites at the times scheduled or at
all. We view the risk profile for our exploration drilling locations as being higher than for our other drilling locations due to relatively less available geologic and production data and drilling history, in particular with
respect to our prospective resource locations in unconventional reservoirs. We make assumptions about the consistency and accuracy of data when we identify these locations that may prove inaccurate.
Our ability to profitably drill and develop our identified drilling locations depends on a number of variables, including crude oil and natural gas prices, capital availability, costs, drilling results, regulatory approvals,
available transportation capacity and other factors. If future drilling results in these projects do not establish sufficient reserves to achieve an economic return, we may curtail drilling or development of these projects. For
a discussion of the risks associated with our drilling program, see Item 1A – Risk Factors – Risks Related to Our Business and Industry in our Form 10-K.
3P Reserves and Other Hydrocarbon Resource Quantities
We provide internally generated estimates for proved reserves and aggregated proved, probable and possible reserves (“3P Reserves”), with each category of reserves estimated in accordance with SEC guidelines and definitions,
though we have not reported all such estimates to the SEC. As used:
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Probable reserves. We use deterministic methods to estimate probable reserve quantities, and when deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum
of estimated proved plus probable reserves.
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Possible reserves. We use deterministic methods to estimate possible reserve quantities, and when deterministic methods are used to estimate possible reserve quantities, the total quantities ultimately recovered
from a project have a low probability of exceeding proved plus probable plus possible reserves.
The SEC prohibits companies from aggregating proved, probable and possible reserves estimated using deterministic estimation methods in filings with the SEC due to the different levels of certainty associated with each reserve
category.
We use the terms “hydrocarbons in place,” “potential recovery,” “original hydrocarbons in place,” “resource potential,” “expected ultimate recovery (EUR),” "net resources," “unrisked prospective resources,” “discovered
resources,” "probable reserves," "possible reserves," and “inventory” to describe estimates of potentially recoverable hydrocarbons remaining in the applicable reservoir. These resources are not proved reserves in accordance
with SEC regulations and SEC guidelines restrict us from including certain of these measures in filings with the SEC. These have been estimated internally without review by independent engineers and may include shale resources
which are not considered in most older, publicly available estimates. Actual recovery of these potential resource volumes is inherently more speculative than recovery of estimated reserves. Factors affecting ultimate recovery
include the scope of our ongoing drilling and workover program, which will be directly affected by commodity prices, the availability of capital, regulatory approvals, drilling and production costs, availability of drilling
services and equipment, drilling results, lease expirations, transportation constraints and other factors; actual drilling results, which may be affected by geological, mechanical and other factors that determine recovery rates;
and budgets based upon our future evaluation of risk, returns and the availability of capital. Management’s estimate of original hydrocarbons in place includes historical production plus estimates of proved, probable and
possible reserves and a gross resource estimate that has not been reduced by appropriate factors for potential recovery and as a result differs significantly from estimates of hydrocarbons that can potentially be recovered.
Unproved inventory comprises risked probable and possible reserves and may include contingent and prospective resources. Contingent and prospective resources consist of volumes identified through life-of-field planning efforts
that may not have been risked by reference to analogy or other methods used to estimate the chance of success from drilling. Ultimate recoveries will be dependent upon numerous factors including those noted above.