Reserves Estimation: The Challenge for the Industry

Abstract

Distinguished Author Series articles are general, descriptive representations that summarize the state of the art in an area of technology by describing recent developments for readers who are not specialists in the topics discussed. Written by individuals recognized as experts in the area, these articles provide key references to more definitive work and present specific details only to illustrate the technology. Purpose: to inform the general readership of recent advances in various areas of petroleum engineering. Introduction Reserves estimation is one of the most essential tasks in the petroleum industry. It is the process by which the economically recoverable hydrocarbons in a field, area, or region are evaluated quantitatively. Downward revisions of U.S. Security and Exchange Commission (SEC)-booked reserves by some oil companies in 2004 brought the topic under public scrutiny. Confidence in reserves disclosures became a public issue, and there were calls from investors and lending institutions for more-reliable reserves estimates. Oil companies have responded by revisiting reserves-estimation procedures, and SPE, American Association of Petroleum Geologists (AAPG), World Petroleum Council (WPC), and Society of Petroleum Evaluation Engineers (SPEE) have launched a joint project to train reserves evaluators. A major goal in this initiative is preparation of training modules that represent industry's "recommended practices." Long before the issue caught the public's attention, however, reserves estimation was a challenge for the industry. The challenge stems from many factors, tangible and intangible, that enter the estimation process, and judgment is an integral part of the process. Uncertainty, along with risk, is an endemic problem that must be addressed. Consequently, the industry's record of properly predicting reserves has been mixed. Despite appeals from some quarters, there currently is no standardized reserves-estimation procedure. The purpose of this paper is to discuss various issues related to reserves, review reserves-estimation procedures, and make suggestions for improvements. Emphasis will be placed on reserves evaluation at the preproduction stage in which estimation errors generally have the highest economic effect. The discussed procedures pertain to conventional oil and gas reserves. Specific rules relating to booking reserves for regulatory purposes are outside the scope of this paper. Reserves Definition and Classification Fig. 1 shows how reserves are part of the petroleum resource base. Under the SPE/WPC definitions, "Reserves are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward" (Petroleum Reserves Definitions 1997). Commerciality implies commitment or expected commitment to develop reserves within a reasonable time frame. Depending on the degree of uncertainty, three main classes of reserves are recognized: proved, probable, and possible, the last-named two collectively called unproved. Proved reserves are those quantities that have reasonable certainty of being recovered, indicating a high degree of confidence. Proved reserves may be developed or undeveloped. Probable reserves are more likely than not to be recoverable, while possible reserves are less likely to be recoverable than probable reserves. Geological and engineering data form the basis of determination. Proved reserves assume recoverability under current economic conditions, operating methods, and government regulations. For unproved reserves, recoverability may be tied to future economic conditions and technology.