Is Reserve Growth a Non-issue??

Taskforce_Unity · Posted: Tue Nov 08, 2005 1:50 am Post subject: Is Reserve Growth a Non-issue??

There is a lot of controversy regarding reserve growth (or technological improvements)

Jean Lahherrerre of ASPO has this to conclude on the matter:

"the conclusions from all these examples is that there is a real evolution of field reserves with time and the result from now to the end of production could be either positive or negative or close to zero. The problem is that it is only at the end of world oil production that the result will be known and many undeveloped fields risk never to be produced, like presently the 300 undeveloped discoveries in North Sea, which are in my database. My guess is that the result will be close to zero, most likely negative."

Momently the agencies propagating reserve growth are the oil companies and the USGS.

For the USGS the issue only popped up in 2000 when suddenly BAM reserve growth and technology was there:

link to image

As we can see from the chart above only in the 2000 USGS study reserve growth appeared.

There are many examples like Yibal, East Texas, Duri, Minas, Fields in the North Sea were no reserve growth occurs!

There are also some were it does.

So is reserve growth an issue or a NON-issue?

Antimatter

Here's an AAPG paper New Oil in Old Places that gives some examples of reserves growth.

Here is a long pdf from the Oxford Institute for Energy Studies from 1997 that looks at UK fields and determines the influence of tax and technology by breaking down fields into those that would not have been produced without changes in the tax regieme and new technologies. Not so much reserves growth related but still interesting. Their conclusion is that both tax and technology had a significant effect.

GreyZone · Heavy Crude Joined: Sep 25, 2005 Posts: 115

One thing that bothers me is the underlying assumption of some people that technological breakthroughs from the 1980s or 1990s have not yet been applied to other existing fields. In fact, the opposite appears to be true - as soon as a new technological breakthrough is available it is applied. Further, each successive breakthrough becomes more expensive to apply. To make using those breakthroughs worthwhile, the real price in constant dollars has to go up but sometimes it doesn't go up enough or other factors drive profit down to where you don't have enough cash to do what you wanted to do anyway.

Right now even though prices are fairly high, projects are being cancelled instead of continued due to the higher price. What's happened is that everyone in the chain wants a bigger piece of the oil profit pie. What this is doing is squeezing the exploration teams with the consequence that they are cancelling almost 25% of marginal projects previously planned. What they are seeing is that in light of reduced margins, projects that they once thought would be profitable at $60 per barrel will now require between $100 and $150 to make a profit.

Tanada

Flow · Heavy Crude Joined: Nov 05, 2005 Posts: 166

I don't see how reserve growth just happened in 2000? Proven reserves have been increasing since the early 1900 when it was thought that there was only a a few million barrels of oil the world.

Reserve growth can happen for any number of reasons, new discoveries, better technology, and most importantly, drilling wells that were previously discovered but not tapped. For example, between Saudi Arabia and Iraq alone, there are 50 large oil fields that have not been put into production. The oil in these fields are not included in their proven reserves but they exist. When they tap a new oil field, proven reserves go up.

DefiledEngine · Heavy Crude Joined: Aug 19, 2004 Posts: 281

I thought reserves was basically a bookeeping issue?
_________________
"Life is merely an orderly decay of energy states, and survival requires the continual discovery of new energy to pump into the system. He who controls the sources of energy controls the means of survival. "

Keith_McClary

"reserve growth" means: the higher oil prices get, the more oil reserves we have.

Taskforce_Unity

Interview with Matthew Simmons about reserve growth:

Ten years ago I started doing analysis on depletion. All these oil field technologies that we helped save were being hyped as doing things they were not doing, but what they were doing was creating decline rates that we'd never been able to do before. Because you couldn't pull hydrocarbons out as fast before. In the last five years I have become one of the most famous speakers on depletion. It was in almost every talk I gave.

SS: Would you agree that these technologies do increase recovery rate?

MS: No.

SS: Not at all?

MS: Well, once in a great while.

SS: My understanding is that industry recovery rates have gone up from where they were twenty, thirty, years ago...

MS: There are always two or three exceptions: the Troll field in the North Sea, where they discovered, before they started producing, that underneath was a three foot layer of additional oil-bearing sands, they could get them both at the same time. That was one of the few cases. Sure, they could recover another billion and a half barrels of oil, but it doesn't have anything to do with running into decline, it's just managing the tail.

SS: But it has increased the recovery rate somewhat?

MS: No, not much. By 1997, 1998 I was basically having concern that we were heading for a bad landing and then came the oil price collapse, again.

ReserveGrowthRulz · permanently banned Joined: Dec 30, 2005 Posts: 818

Reserve growth isn't just a function of price. Even as price has decreased through a given year, stated reserves or absolute known recoverables, as a whole, have a tendency to increase.

I would recommend an interesting methodolgy to calculate reserve growth through time as either the USGS methodology expressed in the "Enigma" paper by Emil Attanasai ( don't have it sitting here beside me to know where it was published ), or the "New Reserve Growth Model for the US Oil and Gas Fields" by Mahendra Verma ( Natural Resources Research, Vol 14 No. 2 June 2005 ) as places to start.

Dismissing it out of hand as just something that just happens in a place or two ignores the entire gamut of research done on the issue by the USGS prior to including it in their 2000 World Assessment.

And if Simmons hasn't heard of what happened in the California heavy oilfields with the introduction of new technology, and how it affected the recovery factor, as well as sustained production rates through time ( even post peak ) and thereby ultimate recovery, I cringe at what similar missteps may have been taken in the Saudi analysis he uses as a launching point for $200/Oil this winter, let alone any of his other conclusions.

rockdoc123 · Light Sweet Crude Joined: May 16, 2005 Posts: 1687

I'm on board with Reservegrowthrulz. Reserves growth is a real thing, and it isn't always dependant on improvement in technology. This is especially true now because as an outside observer what you understand to be the reserves of a field as reported in SEC filings or press releases is almost invariably P1 or at best P1 and half P2 (you have to read the fine print in annual reports). As time goes on in a field companies become more confident in what can be produced (SEC directions based on SPE guidelines indicate 90% confidence of economic production for P1, 50% confidence for P2) so P2 reserves become P1 reserves and P3 reserves are moved up to P2 category through time. The larger a particular discovery is generally the large the observed reserves growth is to someone on the outside. Even from the perspective of the field operator things change through the field history that can result in recovery factors increasing or decreasing (Simmons is full of horsecrap when he says they invariably decrease...there is little evidence for this and on the contrary lots of evidence for increases)....as an example a water flood might suddenly start to be more effective, gas lift might be applied late in the field history etc. ....there are a lot of things that happen late in the life of fields...not all the technology new or old is used up front and it is often not necessarily the technology that is applied but rather how it is applied that makes the difference.
To say it doesn't happen is completely incorrect....if you want examples I can given them. One of my arguments is that it is completely within the realm of reason that the jump in Middle East reserves in the eighties was reserve growth simply because they moved from reporting proven to proven plus probable reserves. Certainly the historical reserve reports from IHS energy support that possibility.

ReserveGrowthRulz · permanently banned Joined: Dec 30, 2005 Posts: 818

I've often wondered how people can dismiss reserve growth so easily, Lynch has a paper where he points out, in Campbells own tables showing his peak oil calculations, reserve growth, and if someone wants NOTHING to do with reserve growth, its Colin.

I also think its easy to confuse the crap outta all this as well, reporting SEC reserves, which I've done, with their probability estimate requirements, strikes me as insanely silly when the software engineers use to report reserves has a deterministic result, not a probability distribution. I haven't done SEC reserves since the mid-late 90's, but back then there wasn't even anything commonly available to calculate probability answers to well declines, just a number based on whatever economic criteria you threw at the software.

The confusion part for most is involved with reserves and resources and ultimates, let alone the probability requirements for proved, possible and probable, sometimes they are treated interchangably and the probabilities are completely ignored, other times people treat reserves=ultimate=resources and all kinds of other booboo's.

WebHubbleTelescope · Intermediate Crude Joined: Jul 08, 2004 Posts: 909

ReserveGrowthRulz · permanently banned Joined: Dec 30, 2005 Posts: 818

I don't know about anyone else, but it sure looks like you and Lynch are talking about two completely different things in different ways, and then graphing them differently, and then you are claiming victory because they are different.

The idea is quite reasonable and displayable....ultimates early in a fields life are different than ultimates at later points in time. The curves Lynch uses to display that might not agree with your view on how oilfields should work or the math or display technique involved, but the evidence of creeping ultimates is in Campbells work, the work the USGS has done, pieces Lynch has pointed out, go ask anyone who keeps a database of field ultimates over time about the differences from past to present, this is hardly rocket science. It tends to be noticed by any engineer who has done field reserves through time, its happened to me 10 years ago before I even knew what to CALL it.

The effect is widely known, easily tracked, and can hardly be debunked unless you can stuff found increases in ultimates back into a bottle somewhere and get rid of them, they simply ARE.

WebHubbleTelescope · Intermediate Crude Joined: Jul 08, 2004 Posts: 909

ReserveGrowthRulz · permanently banned Joined: Dec 30, 2005 Posts: 818

Okay...I understand the beef now. However, that wasn't the information Lynch uses to greatest effect.....at least against Colin and whether or not reserve growth exists...its this..

http://www.gasresources.net/Lynch(Hubbert-Deffeyes).htm

Table 1 being on interest to me. I didn't pay alot of attention when I first found it to the specific field examples, any individual field can be used to prove any particular thing, on either side of the aisle.

My take on larger areas, which in a developed area have a better potential of following Hubbets bell curve, can go either way. Ohio was used by Hubbert in one of, if not THE original paper, as an example of his bell curve. The problem is, when the extraordinary pressures of the boycott/embargos in the 70's was applied to this "depleted" area, the curve reversed and Ohio climbed back to a large portion of its "old" peak production. Now...THAT is an area of considerable size and area, and without the influence of much in the way of majors or "real" money, it did a complete about face when subjected to the types of pressures the entire world is just entering with the reduction in excess capacity.

Grist for the mill....