Introduction
The development of oil and gas fields today depend solely on the amount of the
recoverable hydrocarbon fluid (reserves) discovered in the subsurface formation
(reservoir) and its economic viability. The estimation of these reserves are usually
associated with some level of uncertainties and when these uncertainties are not
factored into the prospect evaluation, the result is a wrong estimation of the reserves.
This means that the value of reserves estimation is a key driver for exploration and
production companies to decide whether to develop or abandon the prospect based
on their set criteria. Therefore, in estimating oil and gas reserves, we rely on the
integrity, skill and the judgment of the evaluator based on the amount of data
available, the complexity of the formation geology and the degree of depletion of
the reservoir (SPE, 1997)
Parties that Use Oil and Gas Reserves
• Companies operating oil and gas field or own an interest in petroleum operations
for in-house valuation
• Banks and other financial institutions involved in financing
• Stock markets around the world
• Regulatory bodies to protect the general public, to manage natural resources, and
to promote uniformity
• Taxation agencies with authority over petroleum products
• Investors in petroleum companies
• Mineral rights owners
• Arbitration (negotiation, settlement, etc) parties. i.e. to work out a deal
• Government for energy policies and strategic planning
2.3 Reasons for Estimating Reserves
• To obtain approvals from relevant ministries and other regulatory bodies
• For exploration, development & production of oil and gas reservoir
• To negotiate property sales and acquisitions
• To determine the market value
• To design facilities
• To obtain financing
• Evaluation of profit/interest
• Government regulations & taxation
• Planning & development of national energy policies
• Investment in oil/gas sector
• Reconcile dispute or arbitration involving reserves
2.4 Resources and Reserves
Resources, sometimes referred to as accumulations, are the total assumed quantities
of hydrocarbons found beneath the earth crust that could exist which may or may not
be produced in the future.
Reserves are estimated remaining quantities of oil and natural gas and related
substances anticipated to be recoverable from known accumulations, as of a given
date, based on the following:
• Analysis of drilling, geological, geophysical, and engineering data;
• The use of established technology;
• Specified economic conditions, which are generally accepted as being reasonable,
and shall be disclosed.
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Hydrocarbon Resources
Resources are the total estimated quantities of hydrocarbons found beneath the earth
crust that could exist which may or may not be produced in the future. These are
commonly referred to as “Accumulations”. Resource is basically different from
reserve whose hydrocarbon deposit is known to exist with reasonable certainty
based on studies from geology and engineering. It encompasses all of the hydrocarbons that could exist, regardless of whether it is recoverable or known to exist.
Therefore, a resource can either be discovered or undiscovered (unknown and cannot
be estimated), economically recoverable or not economically recoverable. It includes
portions of hydrocarbons that are assumed to be present but are not measured
because they have not been explored or are located in inaccessible position.
The amount of naturally occurring accumulations of hydrocarbon estimated to be
originally in place is known as original resources. Hence, if the prospect has been
produced for a particular period of time, the original resources can also be defined on
a given date as the sum of the estimated quantities of hydrocarbon remaining in the
reservoir (naturally occurring accumulation) plus the quantities of the hydrocarbon
already produced plus quantities in the accumulations yet to be discovered if any.
Original resources can be classified as discovered or undiscovered and each of these
is further classified in the flow chart below (Fig. 2.2).
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Contingent Resources
Contingent Resources are those potentially recoverable estimated quantities of
hydrocarbon from discovered accumulations on a given date, whose prospect or
project is not currently viable commercially or mature enough and are uneconomical
for development due to one or more uncertainties or contingencies. Some of these
contingencies may be that there is no current viable market(s) for the hydrocarbon, or
if commercial recovery of the hydrocarbon content is clinging on technology under
development, or evaluation of the accumulation is insufficient to clearly assess
commerciality.
Furthermore, the fact that contingent resource is not commercially viable does not
mean it cannot be seen as a reserve (that is, the movement from contingent resources
into reserves category) but if the key contingencies preventing commercial development are adequately addressed or removed, then it can be called a hydrocarbon
reserve.
Classification of Contingent Resources
Development Not Viable
A discovered accumulation of hydrocarbons where viable processes of recovering
the hydrocarbon content have not yet been developed or a scenario where there are
no current plans to develop or to acquire additional data at the said time due to
limited production potential.
Development Unclarified or on Hold
A discovered accumulation of hydrocarbons of significant size where activities of
the project are not cleared or are on hold and/or where justification as a commercial
development may be subject to significant delay such as political, environmental,
technical or the dwindling market conditions.
Development Pending
This is an accumulation of discovered hydrocarbons where further data acquisitions
are required to confirm commerciality. In this case, the activities of the prospect are
presently happening or ongoing to provide an acceptable explanation of commercial
development in the anticipated or foreseeable future.
2.4.1.2 Prospective Resources
On the other hand, prospective resources which can be referred to as expected or
soon-to-be resources; are defined as the estimated volumes associated with
undiscovered accumulations or as estimated quantities of hydrocarbon as of a
given date to be potentially recoverable and are analyzed on the basis of indirect
evidence but have not yet been drilled. They are technically viable and economical to
produce but they present a higher risk than contingent resources since the risk of
discovery is also added.
Furthermore, we should note that while the engineers and geoscientists take into
consideration the possibility of hydrocarbons discovery and development when
determining the quantities of prospective resources, they also make some assumptions which include a range of uncertainty whether the hydrocarbons will be found.
The prospective resources are further classified as low, best and high estimate as
shown in Fig. 2.2.
Also, there can be a movement from prospective resources to contingent
resources, only if hydrocarbons are discovered and the accumulated discovery
must be further evaluated to determine an estimated quantity that would be recoverable under appropriate development projects.
Classification of Prospective Resources
According to the guidelines for the evaluation of petroleum reserves and resources by
Society of Petroleum Engineers (2001), prospective resources can be classified as:
Play
A project associated with a prospective trend of potential prospects, but requires more
data acquisition and/or evaluation to define specific leads or prospects. This is a
concept of exploration that includes a specific source rocks, reservoir rocks, migration
path and the type of trap to allow the discovery of recoverable quantity of hydrocarbon
(Norwegian Petroleum Directorate,1997).
Lead
A project associated with a potential accumulation that is currently poorly defined
and requires more data acquisition and/or evaluation to be classified as a prospect.
This implies that the data available is not enough to fully classify it as a prospect for
development.
Prospect
A project associated with a potential accumulation that is sufficiently well defined to
represent a viable drilling target. It implies a trap that has been identified and
adequately mapped but yet to be drilled. At this stage, there are some questions
asked to fully evaluate the play or prospect. These are:
• If we are certain of the hydrocarbon source, what then is the content (oil or/and
gas)?
• Can the content in the source rock migrate to the reservoir rock where it is
accumulated and how much of it?
• Does the reservoir have a storage capacity?
• What are the characteristics of the reservoir?
• Are there trapping mechanisms to help prevent the content of the reservoir from
further migration?
• If there is a trap, how efficient is it (seal or non-sealing)?
2.4.2 Hydrocarbon Reserves
Reserves are seen as the heart of the oil and gas business. These can be defined as the
estimated quantities of hydrocarbon such as crude oil, condensate, natural gas
(associated or non-associated gas) that are anticipated to be commercially recoverable with the use of established technology on a known hydrocarbon accumulations
from a given date forward under existing economic conditions, established operating
conditions and current government regulations with a legal right to produce and a
production & transportation facilities to deliver the products to the market. Also, the
interpretations of reliable geologic, geophysics, drilling and engineering data available at the time of estimation are key factors that support the reserves definition.
Reserves estimates are generally revised as additional geologic or engineering data
becomes available or as economic conditions change.
In the previous statement, we established that contingent resources can be moved
to reserves. Therefore, based on development project(s), hydrocarbon reserves must
satisfy four criteria, and these are: discovered, recoverable, commercial, and
remaining quantity as at the date of evaluation (PRMS, 2017). Also, there must be
a reasonable expectation that all required internal and external approvals will be
forthcoming and evidence of company’s intention to proceed with the development
within a reasonable time frame; say 10 years to the international oil companies.
Generally, if they cannot develop it within this time frame, they might be mandated
by the regulatory body to farm-out to marginal field operators.
2.4.2.1 Hydrocarbon Reserves Classification
Classification by Development Operations
Oil and gas reserves can be classified to be on production, which implies that the
prospect is currently producing and the product delivered to the market for consumption. It can be classified as being under development, which means that every
expedient approval has been obtained and the project development is in progress.
Furthermore, having satisfied all criteria for reserves, It can be classified has been
scheduled or outlined for development with substantial desire to develop but all
mandatory approvals have not be finalized or complete detailed development plan
have not been made.
Reserves are further classified according to the degree of certainty associated with
the estimation (Ross, 2001). These are: proved and unproved (probable and possible
reserves).
Classification by Degree of Uncertainty of Estimation
Proved Reserves
Proved reserves are those quantities of hydrocarbon reserves based on analysis of
geological and engineering data that can be estimated with a reasonably high degree
of certainty to be commercially recoverable from a given date forward from known
reservoirs and under current economic conditions, operating methods, and government regulations. It is likely that the actual remaining quantities recovered will
exceed the estimated proved reserves. In general, reserves are considered proved if
the commercial producibility of the reservoir is supported by actual production or
formation tests. In its method of estimation, if probabilistic methods are used, there
should be at least a 90% probability that the quantities actually recovered will equal
or exceed the estimate and if deterministic methods are used, the term with reasonable certainty is intended to express a high degree of confidence that the quantities
will be recovered.
Probable Reserves
Are those quantities of hydrocarbon based on geologic and/or engineering data
similar to that used in the estimation of proved reserves; but technical, contractual,
economic, or regulatory uncertainties deter such reserves from being classified as
proved. In this context, when probabilistic methods are used, there should be at least
a 50% probability that the quantities actually recovered will equal or exceed the sum
of estimated proved plus probable reserves.
Possible Reserves
Possible reserves are those additional reserves that are less certain to be recovered
than probable reserves. It is unlikely that the actual remaining quantities recovered
will exceed the sum of the estimated proved plus probable plus possible reserves.
They can also be defined as those unproved reserves which analysis of geological
and engineering data suggests that they are less likely to be recoverable than
probable reserves. In this context, when probabilistic methods are used, there should
be at least a 10% probability that the quantities actually recovered will equal or
exceed the sum of estimated proved plus probable plus possible reserves.
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