Oil and gas reserves and resource quantification
Oil and gas reserves denote discovered quantities of crude oil and natural gas from known fields that can be profitably produced/recovered from an approved development. Oil and gas reserves tied to approved operational plans filed on the day of reserves reporting are also sensitive to fluctuating global market pricing. The remaining resource estimates are likely sub-commercial and may still be under appraisal with the potential to be technically recoverable once commercially established. Natural gas is frequently associated with oil directly and gas reserves are commonly quoted in barrels of oil equivalent. Consequently, both oil and gas reserves, as well as resource estimates, follow the same reporting guidelines, and are referred to collectively hereinafter as oil & gas.
Quantification
As with other mineral resource estimation, detailed classification schemes have been devised by industry specialists to quantify volumes of oil and gas accumulated underground. These schemes provide management and investors with the means to make quantitative and relative comparisons between assets, before underwriting the significant cost of exploring for, developing and extracting those accumulations. Classification schemes are used to categorize the uncertainty in volume estimates of the recoverable oil and gas and the chance that they exist in reality depending on the resource maturity. Potential subsurface oil and gas accumulations identified during exploration are classified and reported as prospective resources. Resources are re-classified as reserves following appraisal, at the point when a sufficient accumulation of commercial oil and/or gas are proven by drilling, with authorized and funded development plans to begin production within a recommended five years.Reserve estimates are required by authorities and companies, and are primarily made to support operational or investment decision-making by companies or organisations involved in the business of developing and producing oil and gas. Reserve volumes are necessary to determine the financial status of the company, which may be obliged to report those estimates to shareholders and "resource holders" at the various stages of resource maturation.
Currently, the most widely accepted classification and reporting methodology is the 2018 petroleum resources management system, which summarizes a consistent approach to estimating oil and gas quantities within a comprehensive classification framework, jointly developed by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists, the Society of Petroleum Evaluation Engineers and the Society of Economic Geologists. Public companies that register securities in the U.S. market must report proved reserves under the Securities and Exchange Commission reporting requirements which shares many elements with PRMS. Attempts have also been made to standardize more generalized methodologies for the reporting of national or basin level oil and gas resource assessments.
Reserves and resource reporting
An oil or gas resource refers to known or potential accumulations of oil and/or gas in the subsurface of the Earth's crust. All reserve and resource estimates involve uncertainty in volume estimates, as well as a risk or chance to exist in reality, depending on the level of appraisal or resource maturity that governs the amount of reliable geologic and engineering data available and the interpretation of those data.| RESOURCE CLASS | LOW | MID | HIGH |
| Reserves | 1P | 2P | 3P |
| Contingent Resources | 1C | 2C | 3C |
| Prospective Resources | 1U | 2U | 3U |
In the PRMS, the terms 'Resources' and 'Reserves' have distinct and specific meaning with respect to oil & gas accumulations and hydrocarbon exploration in general. However, the level of rigor required in applying these terms varies depending on the resource maturity which informs reporting requirements. Oil & gas reserves are resources that are, or are reasonably certain to be, commercial. Reserves are the main asset of an oil & gas company; booking is the process by which they are added to the balance sheet. Contingent and prospective resource estimates are much more speculative and are not booked with the same degree of rigor, generally for internal company use only, reflecting a more limited data set and assessment maturity. If published externally, these volumes add to the perception of asset value, which in turn can influence oil & gas company share or stock value. The PRMS provides a framework for a consistent approach to the estimation process to comply with reporting requirements of particularly, listed companies. Energy companies may employ specialist, independent, reserve valuation consultants to provide third party reports as part of SEC filings for either reserves or resource booking.
Reserves
Reserves reporting of discovered accumulations is regulated by tight controls for informed investment decisions to quantify differing degrees of uncertainty in recoverable volumes. Reserves are defined in three sub-categories according to the system used in the PRMS: Proven, Probable and Possible. Reserves defined as Probable and Possible are incremental discovered volumes based on geological and/or engineering criteria similar to those used in estimating Proven reserves. Though not classified as contingent, some technical, contractual, or regulatory uncertainties preclude such reserves being classified as Proven. The most accepted definitions of these are based on those originally approved by the SPE and the WPC in 1997, requiring that reserves are discovered, recoverable, commercial and remaining based on rules governing the classification into sub-categories and the declared development project plans applied. Probable and Possible reserves may be used internally by oil companies and government agencies for future planning purposes but are not routinely or uniformly compiled.Proven reserves
Proven reserves are discovered volumes claimed to have a reasonable certainty of being recoverable under existing economic and political conditions, and with existing technology. Industry specialists refer to this category as "P90". Proven reserves are also known in the industry as 1P. Proven reserves may be referred to as proven developed or as proven undeveloped. PD reserves are reserves that can be produced with existing wells and perforations, or from additional reservoirs where minimal additional investment is required. PUD reserves require additional capital investment to bring the oil and/or gas to the surface.Accounting for production is an important exercise for businesses. Produced oil or gas that has been brought to surface and sold on international markets or refined in-country are no longer reserves and are removed from the booking and company balance sheets. Until January 2010, "1P" proven reserves were the only type the U.S. SEC allowed oil companies to report to investors. Companies listed on U.S. stock exchanges may be called upon to verify their claims confidentially, but many governments and national oil companies do not disclose verifying data publicly. Since January 2010 the SEC now allows companies to also provide additional optional information declaring 2P and 3P with discretionary verification by qualified third party consultants, though many companies choose to use 2P and 3P estimates only for internal purposes.
Probable and possible reserves
Probable additional reserves are attributed to known accumulations and the probabilistic, cumulative sum of proven and probable reserves, also referred to in the industry as "2P" The P50 designation means that there should be at least a 50% chance that the actual volumes recovered will be equal to or will exceed the 2P estimate.Possible additional reserves are attributed to known accumulations that have a lower chance of being recovered than probable reserves. Reasons for assigning a lower probability to recovering Possible reserves include varying interpretations of geology, uncertainty due to reserve infill and projected reserves based on future recovery methods. The probabilistic, cumulative sum of proven, probable and possible reserves is referred to in the industry as "3P" where there is a 10% chance of delivering or exceeding the P10 volume.