The Effect of Changes in Pricing and Other Economic Factors on Estimates of Gross Reserves

Abstract

ABSTRACT Oil and gas reserves are projected based upon a number of fluctuating variables such as operating conditions (including curtailments), product prices, operating costs, and production trends. Most of these factors have a direct relationship to the future net revenues and payout times. However, the corresponding effect of changes in these parameters on the gross reserves is quite often buried beneath the surface of associated changes in future revenues. Even though the estimates of gross reserves that could be recovered may not change for a particular well, the economic gross reserves and associated future revenues could change dramatically due to economic and/or operating conditions. An increase, or decrease, in pricing and/or operating costs can alter the volume of oil or gas reserves which are reported. When reserves reports are prepared, it is necessary that the oil and gas producer understands the relationship between gross reserves and economic gross reserves as presented herein. The purpose of this paper is to further investigate and define the effect that changes in economic factors, especially pricing, have on the calculation of economic gross reserves. Three typical Appalachian Basin reservoirs (Clinton, Big Lime, and shallow oil productive sand) are used in this paper to depict the effects of changes in economic conditions. Variations in operating conditions such as curtailments are also briefly addressed to examine associated changes in future revenues and payout times.