[dorlomin]

I came across this post on the guardian coments web site.

To clarify what "proven" reserves means; they are the reserves that have been demonstrated, but drilling of appraisal wells, to be in place, and recoverable (allowing for the fact that most oil is left in the ground. On top of that, the field must be producing or there must be plans in place to produce it. so a field could have been discovered but the company that discovered it may decide to leave it in the bank, so to speak, and develop it at a later date. In this case it would be logged as "probably" not "proven". International oil companies probably have about three times as mny probable reserves as proven. Hence, for these companies, a measure of proven reserves is not necessarily a good measure of how much oil is actually available for production.

http://www.guardian.co.uk/news/datablog ... ntposted=1

I thought so long as a discovery had a well drilled and was assesed as P90, it did not matter if the infrastructure was in place before it could be booked as a reserved under SEC rules.

Can anyone clarify for me?

[rockdoc123]

Can anyone clarify for me?

P1 reserves (which are the P90 based on the directives from SPE) have to be economically recoverable, hence there must be egress. P2 reserves (P50) would be where the pipeline is planned or under discussion. P3 would be a discovery that is of economic size but for which there is no egress currently and is not yet under discussion. There is a new category now called resource which refers to discovered hydrocarbons that are not currently economic. Note that the probability attached to the reserves categories speaks to certainty that you will produce that amount. P90 means you are 90% sure, P10 means you are only 10% sure.

[AirlinePilot]

P1 reserves (which are the P90 based on the directives from SPE) have to be economically recoverable, hence there must be egress. P2 reserves (P50) would be where the pipeline is planned or under discussion. P3 would be a discovery that is of economic size but for which there is no egress currently and is not yet under discussion. There is a new category now called resource which refers to discovered hydrocarbons that are not currently economic. Note that the probability attached to the reserves categories speaks to certainty that you will produce that amount. P90 means you are 90% sure, P10 means you are only 10% sure.

But none of that matters to OilFinder. He just pastes discovery after discovery adding it all up whether its been drilled or not.

[TheDude]

Excerpt from Current Issues and Rulemaking Projects Outline (Division of Corporation Finance)

b. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test.

Petrobras are doing this with the Tupi Extended Production Test, for instance, producing 30 kb/d; a minor production component will be producing 70 kb/d next year and the "full' 200 kb/d comes on line in another 4 years. This proves the viability of the field for the SEC.

This will all change after Dec 15: New SEC Oil Accounting Rules : EclipseNow

Under the new regulations, companies will be able to consider reserves to be proved if reserves can be demonstrated using modern technology, instead of actually having to drill test wells to prove the existence of the reserves. According to the statement, new technologies are permitted “if these technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes.” It seems likely this new rule will be interpreted to permit the use of 3D seismic imaging in determining reserves. It may also allow consideration of the impact of fracturing techniques in estimating reserve amounts. This rule change is should be beneficial to oil and gas companies, since proved reserves are likely to be higher with the expanded definition of what is proved. Implementation of the rule should provide a one-time increase in proved reserves. Also, new discoveries are likely to be booked more quickly in the future, since the amount of a new discovery can be estimated by a technique such as 3-D seismic imaging before wells are drilled in the new location.
The new rules also allow companies to disclose probable (2P) and possible (3P) reserves. Investors are already aware that there can be wide differences in these amounts, so it is not clear that this will have a material impact.

So heap on the obfuscation. This strikes me as a nice analogue to what corporations in the financial sector are doing in the way of creative accounting to make their balance sheets look tidy and pristine. Companies can shoot seismic - or dig up old examples of same? - and beef up their reserves portfolios to their heart's content; no need to actually spend $2 billion on a Mukluk, or dither around the Caspian waiting for all the pieces to fall into place for decades on end.

Oh, and apparently the new regs will allow filing of oil sands. No one blogging who actually works in the petroleum industry seems worked up about this so maybe it's a red herring, instead of letting the majors conduct their very own 80s era OPEC style revision.

[rockdoc123]

So heap on the obfuscation. This strikes me as a nice analogue to what corporations in the financial sector are doing in the way of creative accounting to make their balance sheets look tidy and pristine. Companies can shoot seismic - or dig up old examples of same? - and beef up their reserves portfolios to their heart's content; no need to actually spend $2 billion on a Mukluk, or dither around the Caspian waiting for all the pieces to fall into place for decades on end.

Oh, and apparently the new regs will allow filing of oil sands. No one blogging who actually works in the petroleum industry seems worked up about this so maybe it's a red herring, instead of letting the majors conduct their very own 80s era OPEC style revision.

what's driving the SEC these days is shale gas....hence the need to include 2P and 3P estimates to get a full picture of the value of companies such as Chesapeake and Bill Barnett. Issues such as the Caspian would not be solved by this rule change simply because 1P still refers to economically recoverable reserves at this point in time. Note that the SEC still requires that a significant proportion of reserves are evaluated by third parties (eg: DeGolyer and MacNaughton, Ryder Scott, Sproule) who are can be held legally responsible for their estimates. As well it is doubtful companies would go "over the top" in terms of booking P1 or for that matter P2 reserves based on scantty knowledge. If a well is then drilled and it shows there is less reserves than booked the company is forced to take a write down which for publically traded companies can be disatrous. So there are a few checks and balances in place. The problem will come in transparency simply because many oil and gas investors won't get the fact that there is considerable increasing risk of economically produceable reserves as you move from P1 through P2 to P3 and then resource categories.

[dorlomin]

So heap on the obfuscation.

Is it obstification or is it clarity? The more information that is available the better. Do investors not already factor in guesses about P2 and P3 reserves for example?

[TheDude]

Thanks for the reply, rock. Indeed this PDF from Ryder Scott conveys the impression that the companies are very unhappy about the revision, foreseeing mountains of paperwork for one thing: SEC weighs opposition to reserves proposals. Although RS also support "the use of well calibrated, high-resolution seismic data (that) may also
be considered subject to the constraints noted for a
clear demonstration of reliability.”