Definition of Hydrocarbon Reserves

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).

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. However it should be noted that around the world, government agencies and organizations use slightly different definitions.

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.

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.

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

Probable and Possible Reserves
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.

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.

Prospective Resources
= External Links =

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

= References =