Society of Petroleum Evaluation Engineers Annual Meeting 2004 – June 13-15, 2004 Welches, Oregon

1. Integrating Reservoir Management and Reserves Governance Society of Petroleum Evaluation Engineers Annual Meeting 2004 – June 13-15, 2004 Welches, Oregon Dr. J.W. Ault Manager, ChevronTexaco Corporation Reserves

2. Presentation Outline • Reservoir Management • ChevronTexaco Project Development and Execution Process (CPDEP) • 6P Reserve/Resource Categorization System • Uncertainty Management Plan (UMP) • Reservoir Resource Development Process (RDP) • Reserves Governance Process • Reserves Organization • Reserve Advisory Committee • Annual Reserves Reviews

3. Technology Market Uncertainties Quantified New Information Regulations Oil / Gas Prices Teamwork Uncertainties Resolved Partnerships New Discoveries Reservoir Management Objective:Predict, control, and optimize the production of hydrocarbons while maximizing profits.

4. 1 2 3 4 5 DEVELOP PREFERRED ALTERNATIVE(S) GENERATE & SELECT ALTERNATIVE(S) IDENTIFY & ASSESS OPPORTUNITIES OPERATE & EVALUATE EXECUTE • Project Execution Plan • Technology Selection Plan • Uncertainty Management Plan • Development Plan • Full Cycle Depletion Plan • Reservoir Performance History • Project Execution Plan • Technology Selection Plan • Uncertainty Management Plan • Full Cycle Depletion Plan • Project Execution Plan • Technology Selection Plan • Uncertainty Management Plan • Development Plan • Full Cycle Depletion Plan • Project Execution Plan • Technology Selection Plan • Uncertainty Management Plan • Development Plan • Full Cycle Depletion Plan Project Execution Plan Final Engineering & Construction/ Development Drilling Concept Selection Front End Engineering Exploration/ Delineation Plan Operation Contingent Resources (P4, P5 and P6) Contingent Resources (P4, P5 and P6) to P1U, P2 and P3 Contingent Resources (P4,P5 and P6) Prob (P2) & Poss (P3) to Prov Undev (P1U) Proved Undeveloped (P1U) to Proved Developed (P1D) Reserves/Resource Booking Aligned with Development Process

5. ChevronTexaco 6P Resource Classification System Increasing Recovery Certainty Devel. Undevel. Reserves Increasing economic / political certainty, company commitment Commercial Commerciality Pending Contingent Resources

6. Uncertainty Management Plan A document prepared by the subsurface team that: • Identifies key uncertainties and ranges • Summarizes impact of each uncertainty on Reserves (Production, Value…) • Details specific resolution plans – • gather additional data, cost, timing, etc... • Discusses opportunities to • mitigate downside outcomes (Risk Mitigation) and • capitalize on upside outcomes (Options Planning). • Identifies signposts and details specific action plans • Communicates Uncertainties to Decision Makers

7. Discovered Reserve Opportunity Reserve/Resource Movement Production P1U P2 P3 P1D Unproved Proved P4 P5 P6 Contingent Resources Field Appreciation

8. Resource Development Process (RDP) • Business Unit identifies actions to move reserves and resources into production • Probabilistic forecast based on actions drives planning and reserves Exploration & Acquisitions Technology Plan Action Plans for → P1D Resource Base, P1-6 Production & CAPEX Forecasts Business & Strategic Plans • Process is facilitated using templates

9. RDP:An example method of tying an asset’s work plan, production and reserves together This plot can be compared year-on-year to track performance MMBOE MBD Forecast 2003 P1-6 based on probabilistic forecasts Forecast of future reserves / resource movement based on P1-6 definitions EV production forecast from probabilistic forecasts Field Study Drill Blk 5 Secondary Recovery Field Expansion Milestones from action plans

10. Resource Development Process (RDP) • Improves the way we mature reserves/resources into production • Integrates strategic plan, business plan, and reserves • Provides templates for developing and documenting reservoir management action plans RDP enables the Asset Team to do the following:

11. Business Plan ConnectionWhen is a barrel a Reserve…and not a Resource? Key Tie Is the Long Term Asset Management Plan • A barrel could be a Proved, Probable or Possible reserve if: • Technical certainties and uncertainties are quantified • Project economic and clears company hurdles • First production in 10-year time frame • Exceptions approved by the RAC • Reservoir Management and Contingency Mitigation Plan developed, in-place and documented – Uncertainty Management Plan

12. Economic Reserves Value for Project Approval PROVED (P1) 100% CF1D PROVED (P1) + PROBABLE (P2) CF1U Expected (Mean) Reserves = P1D + P1 U + 0.75 P2 + 0.25 P3 CF2 Cumulative Probability 50 PROVED (P1) + PROBABLE (P2) + POSSIBLE (P3) POM CF3 10 0% P1D P2 Pmean P1U P3 Reserves Assumes project has only Proved, Probable and Possible Reserves

13. Reserves/Resources Lifecycle Field before Production Begins 100% CF1D CF1U CF2 Cumulative Probability 50 LoM CF3 10 0% Pmean P1D P1U P2 P3 Reserves

14. Cum. Reserves/Resources Lifecycle Mature Field with Long Production History 100% CF1D CF1U CF2 Cumulative Probability LoM 50 CF3 10 0% P1D P3 P1U P2 Pmean Reserves

15. SEC Definition of Proved Reserves The estimated quantities of crude oil, condensate, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e, prices and costs as of the date the estimate is made. • demonstrated economically producible by (actual) formation tests • delineated by fluid contacts or lowest known hydrocarbon (LKH) • in selected circumstances, fluid contacts can be inferred from: - electric logs and/or cores if local analogs are productive - seismic flat spots/amplitude anomalies - pressure gradient data • improved recovery volumes with successful pilot or installed program Taken from SEC Regulation S-X – Dec. 27, 1978

16. SEC Definition of Business Certainty “Issuers must demonstrate that there is reasonable certainty that a market exists for the hydrocarbons and that an economic method of extracting, treating, and transporting them to market exists or is feasibleand is likely to exist in the near future. A commitment by the company to develop the necessary production, treatment, and transportation infrastructure is essential to the attribution of proved undeveloped reserves. Reasonable certainty of procurement of project financing by the company is also a requirement for the attribution of proved reserves.” SEC Accounting and Financial Reporting Interpretations and Guidance – March 31, 2001

17. Worldwide Reserves Responsibilities ChevronTexaco Board of Directors ChevronTexaco North America ChevronTexaco Overseas Reserves Advisory Committee (RAC) Dr. J. W. Ault RAC Chairman North America Reserves International Reserves Reserves Manager Reserves Manager Corporate Reserves Business UnitReserves Coordinators Business Unit Reserves Coordinators

18. Reserves Review Process Reserves Estimation Opco / RAC Review & Consolidation Corporate Consolidation Reporting March - December Asset Teams Opco reserves staff and selected RAC members December RAC members and Opco reserves managers only Review Changes with SPC January SBU Reserves Review Meetings (22 Locations) Policy Meeting (1) Corporation annual report SPC – Strategic Planning Committee

19. Reserves Advisory Committee (RAC) Responsibilities • Advisory body to Corporate Senior Management • Ensure reserves are estimated and reported on a sound and uniform basis consistent with SEC guidelines • Act as custodian of professional standards for estimating reserves • Issue and maintain manual of standards and procedures • Initiate 3rd party reserves audits • Provide an impartial and objective review of recommended Business Unit changes and additions to ChevronTexaco worldwide reserves and resources base • Annually review reserves and changes with PricewaterhouseCoopers

20. RAC Profile Industry Experience Position Level Manager / Team Leader 37% Fellows 10% General Manager 24% Average 26 Years – Cumulative 574 Years Other Technical 29% Organizational Professional Background Financial 5% Geological & Geophysical 33% Engineering 62%

21. Reserves Activities JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC • Reserves Advisory Committee:Annual Business Unit Reviews • Reserves Advisory Committee: Major Field Reviews • Reservoir Asset Management Team: New Upstream Project Reviews • Exploration Review Team / Reservoir Asset Management Team /Reserves Advisory Committee: Post Drill Reviews • Reserves Advisory Committee / Opco Reserves Groups: Reserves Record Reviews and Third Party Reserves Reviews

22. Annual RAC Review Locations Canada Europe Kazakhstan 6 U.S. Locations China PNZ Thailand Nigeria Colombia Indonesia Angola Australia

23. Reservoir Asset Management (RAM):Upstream Subsurface Assessment Process • RAM team works with the Business Units to assure the technical quality of reservoir management activities, subsurface evaluations, and forecasts for: • Major Development Projects • Acquisitions • Producing Assets • RAM Team uses a formalized set of review sessions: • Subsurface Planning Assist • Subsurface Technical Review • Reservoir Management Quality Fitness Review

24. Exploration Review Team (ERT) • The Mission of the ERT is as follows: • Assure standardized and consistent risk and volume assessment for the ChevronTexaco (CVX) Worldwide Exploration Portfolio • Assess and improve the predictive accuracy of risk and volumes in the CVX Worldwide Exploration Portfolio

25. Organizational Capability: The Key to Improving Reservoir Management and Reserves Governance Business Units Dynamic leaders Skilled employees World-class processes and organizations Recognition and accountability Technology and Partnerships Learning & Innovation Best Practice Sharing Reserves Advisory Committee Exploration Review Team Reservoir Asset Management Technology Companies • Technology development and services • Training • Standards • Reviews