Definition of Hydrocarbon Reserves

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Different systems have been used to classify reserves of oil and gas since the industry first developed in the nineteenth century. But the most widely used definitions today are provided by the Petroleum Resources Management System of the American Society of Petroleum Engineers (SPE).[1]

Reserve estimates are a major driver of value for exploration and production companies. All reserves are estimates of underground reservoirs which cannot be physically inspected and always involve some degree of uncertainty. However such systems are important in creating a 'universal language' of clear terms and definitions that result in reliable and easily comparable reserve estimations for investors, regulators, governments and consumers.[2] However it should be noted that around the world, government agencies and organizations use slightly different definitions.[3]

According to the Vice President of petroleum consultancy Ryder Scott, there has been a trend towards commissioning external audits of estimated reserves. With increased attention given to corporate responsibility in financial reporting, he asserts that oil and gas companies are now engaging third-party engineers to evaluate or audit petroleum reserves.[4]

Categories of reserves

According to the SPE Guidelines, 'reserves' are a subset of 'resources', representing the part of resources which are commercially recoverable and have been justified for development. Reserves can be subsequently divided into the following three categories depending on certainty of recovery.[5]

Proved Reserves

The highest valued category of reserves is “proved” reserves. Proved reserves have a “reasonable certainty” of being recovered, which means a high degree of confidence that the volumes will be recovered. To be clear, reserves must have all commercial aspects addressed. It is technical issues which separate proved from unproved categories.[6]

The term 1P is frequently used to denote proved reserves.[7] BP publishes an annual Statistical Review which details proved reserves for over 50 producing countries.[8]

Probable and Possible Reserves

“Probable” or “possible” reserves are lower categories of reserves, commonly combined and referred to as “unproved reserves,” with decreasing levels of technical certainty. Probable reserves are volumes that are defined as “less likely to be recovered than proved, but more certain to be recovered than Possible Reserves”. Possible reserves are reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves.[9]

The term 2P is used to denote the sum of proved and probable reserves and 3P the sum of proved, probable and possible reserves. The best estimate of recovery from committed projects is generally considered to be the 2P sum of proved and probable reserves.[10]

Resources

'Resources' denotes less certainty than 'reserves' because some significant commercial or technical hurdle must be overcome prior to there being confidence in the eventual production of the volumes.[11]

Contingent Resources

These are resources that are potentially recoverable but not yet considered mature enough for commercial development due to technological or business hurdles. For contingent resources to move into the reserves category, the key conditions, or contingencies, that prevented commercial development must be clarified and removed. As an example, all required internal and external approvals should be in place or determined to be forthcoming, including environmental and governmental approvals. There also must be evidence of firm intention by a company’s management to proceed with development within a reasonable time frame (typically 5 years, though it could be longer).[12]

Prospective Resources

Prospective resources are estimated volumes associated with undiscovered accumulations. These represent quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but which have not yet been drilled. This class represents a higher risk than contingent resources since the risk of discovery is also added. For prospective resources to become classified as contingent resources, hydrocarbons must be discovered, the accumulations must be further evaluated and an estimate of quantities that would be recoverable under appropriate development projects prepared.[13]

External Links

SPE Non-Technical Guide: www.spe.org/industry/docs/PRMS_guide_non_tech.pdf

References

  1. "Petroleum Reserves & Resources Definitions" Society of Petroleum Engineers, retrieved 18 January 2012.
  2. "SPE Petroleum Resources Management System Guide for Non-Technical Users" ,Society of Petroleum Engineers, retrieved 18 January 2012.
  3. "Petroleum Reserves & Resources Definitions", Society of Petroleum Engineers, retrieved 18 January 2012.
  4. "The Reserves Audit" Ryder Scott, retrieved 18 January 2012.
  5. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.
  6. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.
  7. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.
  8. "BP Statistical Review 2009, BP, 2009.
  9. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.
  10. "SPE Petroleum Resources Management System Guide for Non-Technical Users" Society of Petroleum Engineers, retrieved 18 January 2012.
  11. "SPE Petroleum Resources Management System Guide for Non-Technical Users" Society of Petroleum Engineers, retrieved 18 January 2012.
  12. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.
  13. "SPE Petroleum Resources Management System Guide for Non-Technical Users", Society of Petroleum Engineers, retrieved 18 January 2012.