Rosnedra will develop a domestic system for classifying solid mineral reserves

Rosnedra plans by the end of 2022 to develop a Russian system for classifying solid mineral reserves (SRM). This was announced on September 7 during a meeting of the Supreme Mining Council at the EEF-2022, the head of Rosnedra Evgeny Petrov.

The official explained that in October Rosnedra will start testing the new methodology with companies, which will make it possible to understand the relevance of the chosen approach, first of all, “in terms of geological and economic assessments of solid minerals deposits.” He also emphasized that the classification should be harmonized with international valuation methods, but “this does not mean that the basis for the new system will be JORC” (Australian-Asian Exploration Reporting Code, a classification traditionally used by mining companies. – Vedomosti) ).

“We are creating our own domestic product that meets the tasks of the industry today, the challenges that we face in the coming years,” said Petrov (quoted by Interfax). According to him, this will allow companies to work more efficiently, and Rosnedram “to use the information and models received for the development of the resource base, qualitative and quantitative forecasts, planning of geological exploration (GE)”.

The head of Rosnedra recalled that earlier, for several years, Rosnedra had been working on a new classification of hydrocarbon reserves (HCs), and now it is already in effect. And it has a separate column “profitable reserves,” Petrov pointed out. The new classification of hydrocarbon reserves came into force on January 1, 2016. Before that, the Russian classification did not take into account the profitability of reserves.

Oil and gas companies’ reserves are usually audited by two major international players, DeGolyer & MacNaughton and Miller & Lents, who evaluate oil and gas volumes according to Western classifications (PRMS and SEC). In 2019, an inventory of Russian oil reserves was carried out, only 64% of recoverable reserves or 11.2 billion tons were recognized as profitable. Deputy Energy Minister Pavel Sorokin in December 2019 stated that the inventory of reserves “set the vector for reforming state policy” in the field of taxation oil industry.

In early August 2022, the head of the State Commission for Mineral Reserves (GKZ), Igor Shpurov, reported that 65% of oil reserves in Russia were profitable (he did not give absolute figures). According to the Ministry of Natural Resources, as of January 1, 2021, oil reserves in Russia (categories A + B₁ + C₁) amounted to 19 billion tons, gas condensate – 2.2 billion tons, gas – 47.7 trillion cubic meters. m.

The Ministry of Natural Resources has repeatedly stated the need to convert geological information into digital form and ensure its online availability. Rosnedra’s digital transformation program provides for the digitization of 90% of geological information by the end of 2024. Currently, information on mineral reserves is partially stored on paper – more than 650,000 books, 118 million sheets and 10 million graphic applications in different organizations.

The digitization of geological information and the creation of a Big Data network are envisaged by the initiative of socio-economic development until 2030 “Geology. The revival of a legend”, for which in 2022-2024. allocated from the budget 31.6 billion rubles.

In December Gazprombank (GPB) sent a private concession initiative to the government to create a unified digital information system for subsoil use. The project provides for the creation of a single digital platform by modifying the existing federal state information system of the Unified Fund for Geological Information on Subsoil (FSIS EFGI). Investments are preliminary estimated at up to 15 billion rubles, the preliminary launch date is 2026 (Vedomosti wrote about this on December 13, 2021)

A Vedomosti source in one of the mining companies says that the development of a new classification of solid minerals reserves is “long overdue”, since the current system often does not reflect the real efficiency of field development, and the assessment methods themselves are significantly outdated. In his opinion, the new system is unlikely to be very different from the assessment by Western standards, but at the same time it will be more adapted to Russian realities.

A burning issue, especially for small market players, according to the interlocutor of Vedomosti, may be the question of the cost and timing of the revaluation. Asked about possible risks, he noted that in order for the introduction of the new system not to adversely affect the capitalization of mining companies, it is necessary to involve a wide range of experts from the industry community from the earliest stages of preparing and conducting research work.

Sergei Grishunin, Managing Director of the NRA Rating Service, explains that the current system for classifying solid minerals reserves in Russia “does not imply a direct connection” with the economic profitability of developing these reserves. “To a greater extent, it reflects the volume of geological exploration carried out. This explains the division of reserves in the Russian classification into geological and industrial,” says the expert.

The analyst of the metallurgy sector of the analytical department agrees with him “Opening Research” of Otkritie Bank Daniil Karimov: “Despite the quality and completeness of the technical and mining and geological assessment, the Russian system may be inferior in providing investment characteristics of deposits.” Foreign classifications, according to Karimov, provide an opportunity to evaluate various strategies for the development of a field by its potential operator at a certain price level, provide a higher degree of protection against misinterpretation of the project’s potential.

At the same time, experts note that international classifications are based on the conscientiousness of appraisers. Karimov points out that the JORC assessment largely depends on the experience of its executor, while the Russian classification allows verification at any stage and collective acceptance of reserves and forecast resources estimates. In this regard, Grishunin recalls that the introduction of the new hydrocarbon classification system “harmonized as much as possible” the assessments according to Russian and international classifications, which increased the availability of information on projects for foreign investors.

According to Karimov, if the new classification is introduced, Russian companies that have a JORC estimate of their reserves should not notice significant changes in terms of the value of reserves or their capitalization. At the same time, companies whose reserves are estimated exclusively according to the Russian classification may indeed face a revaluation of their balance sheets.

At the same time, there is a chance for new projects to accelerate the adoption of investment decisions, Grishunin believes. “In the current environment, investors from friendly countries will show interest in solid minerals, so a new classification similar to the well-known JORC will be useful,” he says. The expert adds that the cost of creating a new classification should fit into the average cost of work on a large project of a design institute and “we can talk about 5-10 million rubles.”

Vedomosti sent inquiries to large mining companies.