The Philosophy of Reserve Estimation
- J.G. Ross (Gaffney, Cline & Associates)
- Document ID
- Society of Petroleum Engineers
- SPE Hydrocarbon Economics and Evaluation Symposium, 16-18 March, Dallas, Texas
- Publication Date
- Document Type
- Conference Paper
- 1997. Society of Petroleum Engineers
- 5.7 Reserves Evaluation, 5.7.6 Reserves Classification, 5.6.3 Deterministic Methods
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The recent publication for discussion of the SPE/WPC draft reserve definitions has highlighted the difficulty in attempting to relate deterministically-derived reserve estimates with those based on a probabilistic methodology. Although the debate over the benefits/disadvantages of the two estimation approaches will no doubt be rekindled, a more fundamental issue is that of the difference between an "incremental" (or risk) based philosophy to reserve estimation and a "Best Estimate" (or uncertainty) based one.
The current SPE definitions are based on an incremental philosophy where Proved reserves are "reasonably certain", Probable reserves are "less certain" than Proved reserves and the summation of Unproved (Probable and Possible) reserves with Proved reserves is precluded "because of different levels of uncertainty". The use of "uncertainty" in this context really reflects risk. This philosophy is perfectly acceptable and has been the fundamental basis of reserve estimation (especially in the USA) for many years; however, it is not directly comparable to the philosophy on which the probabilistic approach is based.
The Best Estimate philosophy reflects the hypothesis that the primary objectives of reserves estimation are (a) to make the best estimate possible as to what hydrocarbon volumes will actually be recovered up to field abandonment, and (b) to assess what is the uncertainty in that estimate. This philosophy is inherent in the probabilistic approach, but it is clear that the deterministic methodology can also be (and is) applied using this logic. If the Best Estimate philosophy is applied, deterministic and probabilistic reserve estimates may be comparable (in theory at least).
The estimation of reserves is fundamental to the oil and gas industry. It is essential for future planning, whether at the field, company or country level, and provides the basis for the assessment of value of an exploration and production company. The potential benefits to the industry of a single set of reserve definitions (and a consistent approach to their application) are obvious, and much effort has been expended in attempts to achieve such standardization. The current (1987) definitions of the Society of Petroleum Engineers (SPE) are the most widely accepted internationally and incorporate a broad set of guidelines (unlike most definitions). Nevertheless, efforts continue to extend further their acceptance, by modifying and expanding the definitions to reflect new or alternative situations and methodologies that may be relevant to reserve estimation. The most recent attempt to establish a broader international acceptance of the definitions is embodied in the 1996 SPE/WPC draft, which reflect, among other things, the desire to link the definitions to the use of the probabilistic estimation technique by specifying particular levels of "confidence" with the reserve categories of Proved, Probable and Possible. It is not intended to discuss the details of the SPE/WPC draft here; opportunity for discussion and comment has been given elsewhere. However, the draft definitions are relevant in that they highlight the fact that there are two fundamentally different philosophies being applied to reserve estimation and it is not meaningful to attempt to compare the results of deterministic and probabilistic reserve estimates if they are based on different philosophies. A resource classification system is proposed which clarifies the distinction between risk and uncertainty, and establishes a basis for reserve definitions which are applicable regardless of the estimation methodology.
What are Reserves and Resources?
In order to place reserves in context, it is necessary to define resources first. Resources are generally accepted to be all volumes of hydrocarbons contained in the sub-surface, plus those volumes already produced. An example definition, by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), is as follows:
"Resources are the total quantities of oil and gas and related substances that are estimated, at a particular time, to be contained in, or that have been produced from known accumulations, plus those estimated quantities in accumulations yet to be discovered".
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