The substantial reduction in global oil prices has put the oil and gas community in a challenging and yet vaguely familiar position. It is once again reminded of the effect oil and gas prices have on companies working to profitably exploit these resources. When there are changes in prices, reserves estimation can dictate the profitability an operator can ultimately obtain.
Larry Mizzau, principal for reserves and resources governance at Cenovus Energy reflects on his 30-plus years of experience in the industry and shares his thoughts on how commodity prices impact operators, reserves consultants, and young professionals (YPs) looking to establish a career in reserves estimation.
What is reserves estimation?
Reserves estimation is a key step in understanding an oil and gas company’s resource base and the opportunities it affords. It is found at the crossroads between asset management and financial stewardship. It involves the estimation of remaining volumes of hydrocarbons economically recoverable from an oil and gas operator’s subsurface assets using current technology.
Given that reserves exist deep in the ground, they cannot be determined with absolute certainty and, as such, can only be estimated. To assist investors in understanding this uncertainty, reserves estimates are typically determined at different confidence levels.
In Canada and the United States, public operating companies must disclose an updated estimate of their remaining oil and gas reserves on a yearly basis as part of their yearend financial reporting. Specifically in Canada, operators are required to disclose assessments prepared or audited by independent qualified reserves evaluators (IQREs) who can be externally or internally retained by the company.