Project Finance

Reserve risk

Existing reserves are depleting over time due to increasing demand for both products and production from operations. BHP's revenues and profits are mostly derived from its operations. As a result, the success of exploration and acquisitions directly affect future results, financial condition and the replacement of existing reserves. The ability to discover new reserves, enhance existing reserves or develop new operations sufficiently to maintain or grow the current level of the reserves becomes BHP primary concern. (BHP annual report 2012)

Exploration activities may increase land tenure, infrastructure and related political risk, which cause cost over-runs and project delays. Drilling of acreage and existing reserves may not be economic due to the future potential deterioration in commodity pricing. The reserve estimations rely on numerous assumptions, changes in geological, technical or economic factors can dramatically invalidate these estimations. Reserve recovery and required reserve restatements are influenced by the uncertain global financial outlook, which will eventually affect results and prospects. (BHP annual report 2012)

Mitigation

Accurate estimation is the key for the mitigation of reserve risk. All petroleum properties were assessed by the technical staff within the operating organisation.

Several skills are required:

* professional qualifications outlined by the Society of Petroleum Engineers

* training about fundamentals of SEC reserves reporting

* reserve processes endorsed by the PRG

Secondary assurance of the oil reserve was provided by the internal Group Audit Services in their annual audits.

According the 2012 annual report, oil and gas reserves increased by a total of 953 MMboe, which included 617 MMboe of proved reserves obtained from Petrohawk Energy Corporation’s onshore conventional and shale assets. The new development projects planned in the Fayetteville and Eagle Ford fields attributed an...