Proven, probable and possible reserves are the three most common categories of reserves used in the oil industry. They are intended to represent the probability that a reserve exists based on the geologic and engineering data and interpretation for a given location, though many governments refuse to disclose verifying data to support their claims.
Proven Reserves - defined as oil and gas "Reasonably Certain" to be producible using current technology at current prices, with current commercial terms and government consent, also known in the industry as 1P. Some industry specialists refer to this as P90, i.e., ideally having a 90% certainty of being produced. Proven reserves are further subdivided into "Proven Developed" (PD) and "Proven Undeveloped" (PUD). PD reserves are reserves that can be produced with existing wells and perforations, or from additional reservoirs where minimal additional investment (operating expense) is required. PUD reserves require additional capital investment (drilling new wells, installing gas compression, etc.) to bring the oil and gas to the surface.
Probable Reserves - defined as oil and gas "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial terms and government consent. Some Industry specialists refer to this as P50, i.e., ideally having a 50% certainty of being produced. This is also known in the industry as 2P or Proven plus probable.
Possible Reserves - i.e., "having a chance of being developed under favourable circumstances". Some industry specialists refer to this as P10, i.e., ideally having a 10% certainty of being produced in the foreseeable future. This is also known in the industry as 3P or Proven plus probable plus possible.
Tuesday, March 4, 2008
Oil reserves
Oil reserves refer to portions of oil in place that are claimed to be recoverable under current economic constraints. In this context, oil refers to conventional oil and excludes oil from coal, oil shale, bitumen and extra-heavy oil (tar sands).[1]
Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally as the amount of oil remaining is reduced. The recovery factor (RF) is the percentage of oil in place which is expected to be economically recoverable under a given set of conditions. (It is therefore important to realize that as the price of oil goes up on the markets, the amount of petroleum in the ground that is economically recoverable goes up, because the oil that is more expensive to get is now recoverable at a profit. As the price goes down, the amount that is economically recoverable goes down. So the amount of oil you can say you have in your SEC statements--i.e. "bookable barrels"--depends on the price of oil on the markets as well as the actual amount of oil in the ground. A large change in price will radically change the amount of oil understood to be part of the reserve, regardless of whether any oil has been lifted from the wells in question or not.)
Oil reserve estimates are ideally a measure of geological and economic risk — of the probability of oil existing and being producible under current economic conditions using current technology. The international authority for reserves definitions is generally the Society of Petroleum Engineers. The U.S. Securities and Exchange Commission demands that oil companies with exchange listed stock adopt reserves accounting standards that are consistent with common industry practice. However these standards are based on historical production practices and are not always meaningful in dealing with deep-water and non-conventional oil fields that are becoming the source of more and more of the world's oil production. In addition, many of the world's largest oil-producing countries do not follow normal industry standards in estimating their oil reserves and do not publish any data which would allow their estimates to be verified.
Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally as the amount of oil remaining is reduced. The recovery factor (RF) is the percentage of oil in place which is expected to be economically recoverable under a given set of conditions. (It is therefore important to realize that as the price of oil goes up on the markets, the amount of petroleum in the ground that is economically recoverable goes up, because the oil that is more expensive to get is now recoverable at a profit. As the price goes down, the amount that is economically recoverable goes down. So the amount of oil you can say you have in your SEC statements--i.e. "bookable barrels"--depends on the price of oil on the markets as well as the actual amount of oil in the ground. A large change in price will radically change the amount of oil understood to be part of the reserve, regardless of whether any oil has been lifted from the wells in question or not.)
Oil reserve estimates are ideally a measure of geological and economic risk — of the probability of oil existing and being producible under current economic conditions using current technology. The international authority for reserves definitions is generally the Society of Petroleum Engineers. The U.S. Securities and Exchange Commission demands that oil companies with exchange listed stock adopt reserves accounting standards that are consistent with common industry practice. However these standards are based on historical production practices and are not always meaningful in dealing with deep-water and non-conventional oil fields that are becoming the source of more and more of the world's oil production. In addition, many of the world's largest oil-producing countries do not follow normal industry standards in estimating their oil reserves and do not publish any data which would allow their estimates to be verified.
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