This excerpt taken from the MRO 10-K filed Mar 10, 2005.
Estimated Net Recoverable Quantities of Oil and Gas
We use the successful efforts method of accounting for our oil and gas producing activities. The successful efforts method inherently relies on the estimation of proved reserves, both developed and undeveloped. The existence and the estimated amount of proved reserves affect, among other things, whether certain costs are capitalized or expensed, the amount and timing of costs depleted or amortized into income and the presentation of supplemental information on oil and gas producing activities. Both the expected future cash flows to be generated by oil and gas producing properties used in testing for impairment of such properties and the expected future taxable income available to realize the value of deferred tax assets also rely in part on estimates of net recoverable quantities of oil and gas.
Proved reserves are the estimated quantities of oil and gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Estimates of proved reserves may change, either positively and negatively, as additional information becomes available and as contractual, economic and political conditions change. During 2004, net revisions of previous estimates increased total proved reserves by 81 million BOE as a result of 190 million BOE in positive revisions which were partially offset by 109 million BOE in negative revisions.
Our estimation of net recoverable quantities of oil and gas is a highly technical process performed primarily by internal teams of in-house reservoir engineers and geoscience professionals. All estimates prepared by these internal teams are approved by members of the Corporate Reserve Group upon input into Marathon's Reserve System. Any change to proved reserves in excess of 2.5 million BOE, on a field-total basis for a single month, must be approved by the Director of Corporate Reserves. In 2003, we implemented a process to have third party consultants audit the top 80 percent of our reserves over a 3 year period. Those third party audits have been completed on roughly 50 percent of our year-end 2004 reserves and have not resulted in any reserve changes. In addition to third party audits, the Corporate Reserve Group routinely audits properties with problematic indicators such as excessively long reserves life, sudden changes in performance, changes in economic or operating conditions, or recent acquisitions of material fields.
The reserves of the Alba field offshore Equatorial Guinea comprise approximately 40 percent of our total proved oil and gas reserves. The next five largest oil and gas producing asset groups the Brae Area Complex offshore the United Kingdom, the Alvheim/Vilje development offshore Norway, the Kenai field in Alaska, the Petronius
development in the Gulf of Mexico and the Foinaven area complex offshore the United Kingdom comprise a total of approximately 20 percent of our total proved oil and gas reserves.