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UNFC and Commercial Applications

The United Nations Framework Classification for Resources (UNFC) is constructed to classify projects and the resource quantities associated with them. It was initially designed to serve the following principal applications: 

  • Energy and mineral studies
  • Resource management functions
  • Corporate business processes
  • Financial reporting standards

UNFC is now a classification system for extractive activities (oil, gas, minerals and geothermal energy), renewable energy projects, subsurface storage projects and anthropogenic resources. It is a classification of projects on a 100% basis. As a consequence, of this and the evolution of needs over time, the applications may change, in particular the application to financial reporting standards. 

Commerciality is generally understood as being “ready for buying and selling at scale”. In the classification there are two aspects of commerciality: 

  • The commerciality of the quantities that the project produces. To be commercial (ready for buying and selling at scale) the quantities need to be produced by a project that satisfies the conditions defining categories E1 and F1.
  • The commerciality of the projects as assets where an asset is understood as a legal right to which value is attached. Most projects will on this basis be commercial regardless of categorisation, provided there is a market for buying, selling or exchanging project assets. 

For these purposes, the interest in commerciality is generally not about the commerciality of the total quantities produced or the project assets on a 100% basis, but of the stakeholder’s interests in these. This in turn is determined by the legal rights and contracts. Government is considered a stakeholder in this context. 

Commercial Applications Guidance

UNFC Applied to Commercial Assessments – draft considerations

This report serves as background for the further work of the Working Group on Commercial Applications of UNFC. It recognises the need to distinguish between quantities that are ready for buying and selling in a market and are defined as commercial quantities, from those quantities that are produced for direct use without going through a market. UNFC is well suited to classify both.

No substantial change is required in its structure. However, the term commercial displayed in UNFC needs to be replaced by a term covering both types of quantities. Furthermore, “economic” needs to be defined in a way that is relevant to both. The term is taken to mean that the benefits derived from the quantities exceed the efforts of obtaining them. This is often expressed in monetary terms that will require a revenue, which is not necessarily relevant for quantities that will be used without being sold.

The above conclusion is communicated now since it may impact the ongoing update of UNFC. Further conclusive work from the Commercial Working Group will await the outcome of the update in order to ensure that the official communication from the Expert Group on Resource Management over the longer term is internally consistent.

Working Group on Commercial Applications of UNFC 

The Commercial Group will address: 

  • How commercial considerations may affect the classification of projects and of each stakeholder’s interest in the projects. It will advise on considerations relevant to applying the UNFC at the level of stakeholders.
  • How the UNFC may be applied to facilitate capital allocation, including through lending, project finance, divestment, mergers and acquisition, fundraising and in reports to project and corporate owners. The Group will advise on how to inform users about the values that asset owners can expect to derive from the projects.

The group will not prescribe methodologies for making assumptions about future commercial conditions, but rather identify the considerations that need to be made to assess the commerciality of projects, including long lived projects.

In its work, the group may look at characteristics of projects in addition to the cumulative sum of sales and non-sales production, including but not limited to their future cash flows.