Cobalt Annual Report 2015 - page 127

Cobalt International Energy, Inc.
Notes to Consolidated Financial Statements (Continued)
F-35
21. Supplemental Information on Oil and Gas Exploration and Production Activities (Unaudited)
the estimate is made. Proved developed oil and natural gas reserves are proved reserves that can be expected to be recovered through
existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. A variety of
methodologies are used to determine the Company’s proved reserve estimates. The principal methodologies employed are decline
curve analysis, advance production type curve matching, petrophysics/log analysis and analogy. Some combination of these methods
is used to determine reserve estimates in substantially all of the Company’s fields. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established
proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The Company follows the guidelines prescribed in ASC No. 932 for computing a standardized measure of future net cash flows
and changes therein relating to estimated proved reserves. The following summarizes the policies used in the preparation of the
accompanying oil and natural gas reserve disclosures, standardized measures of discounted future net cash flows from proved oil and
natural gas reserves and the reconciliations of standardized measures from year to year.
The information is based on estimates of proved reserves attributable to the Company’s interest in oil and natural gas properties
as of December 31, 2015, 2014 and 2013. The Company did not have proved reserves as of December 31, 2012. These estimates were
prepared by NSAI.
The standardized measure of discounted future net cash flows from production of proved reserves was developed as follows:
(1) Estimates are made of quantities of proved reserves and future periods during which they are expected to be produced
based on year-end economic conditions.
(2) The estimated future cash flows are compiled by applying the twelve month average of the first of the month prices of
crude oil and natural gas relating to the Company’s proved reserves to the year-end quantities of those reserves for
reserves.
(3) The future cash flows are reduced by estimated production costs, costs to develop and produce the proved reserves and
abandonment costs, all based on year-end economic conditions, plus Company overhead incurred.
(4) Future income tax expenses are based on year-end statutory tax rates giving effect to the remaining tax basis in the oil and
natural gas properties, other deductions, credits and allowances relating to the Company’s proved oil and natural gas
reserves.
(5) Future net cash flows are discounted to present value by applying a discount rate of 10%.
The assumptions used to compute the standardized measure are those prescribed by the U.S. Generally Accepted Accounting
Principles. These assumptions do not necessarily reflect the Company’s expectations of actual revenues to be derived from those
reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are
equally applicable to the standardized measure computations, since these reserve quantity estimates are the basis for the valuation
process. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and
undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties. The standardized
measure of discounted future net cash flows does not purport, nor should it be interpreted, to present the fair value of the Company’s
oil and natural gas reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves not
presently classified as proved, anticipated future changes in prices and costs and a discount factor more representative of the time
value of money and the risks inherent in reserve estimates.
Prices used in the report prepared by NSAI are based on the 12-month unweighted arithmetic average of the first-day-of-the-
month price for each month in the period January through December. For oil and NGL volumes, the average Light Louisiana Sweet
spot price of $54.02 and $98.48 per barrel was used and was adjusted for quality, transportation fees, and market differentials for the
years ended December 31, 2015 and 2014, respectively. For gas volumes, the average Henry Hub spot price of $2.587 and $4.350 per
MMBtu was used and was adjusted for energy content, transportation fees, and a regional price differential for the years ended
December 31, 2015 and 2014, respectively. For the proved reserves, the average spot prices are adjusted by energy content and
1...,117,118,119,120,121,122,123,124,125,126 128,129,130,131,132,133,134,135,136
Powered by FlippingBook