How To Evaluate Hard-To-Evaluate Reserves (includes associated papers 23545 and 23553 )

Summary. Traditional U.S. reserve evaluations are based on tried and tested engineering principles, a wealth of local and general experience, and a set of reserve definitions that have evolved to become the industry standard. For the most part, these definitions work well. However, for some of the emerging technology plays (sometimes called statistical plays) where individual well performances are characterized by significant variability of recoveries, applying these definitions alone is insufficient. The problem is how best to evaluate tight sands, coalbed methane, Devonian shales, horizontal drilling in fractured reservoirs, and redevelopment of depleted fields. This paper presents a method for evaluating plays that involve a significant variability (uncertainty) component. This probability analysis is not new; indeed, it has been formalized to a stage of definitions of proven, probable, and possible reserve categories. Although this method has been applied in many parts of the world, use in U.S. based reserve evaluations has been minimal. Case histories compare reserve evaluation methods in two hard-to-evaluate U.S. plays, the Austin Chalk horizontal drilling play and the San Juan basin coalbed-methane play. These case histories illustrate the benefit of coupling classic deterministic techniques with probability analysis to express uncertainty consistently and meaningfully.

Background

The reserve definitions most commonly used in the U.S. are those published by the Securities and Exchange Commission (SEC) and SPE in conjunction with the Soc. of Petroleum Evaluation Engineers (SPEE). The 1988 SPEE monograph comprehensively describes the most recent version of the definitions published by SPE in May 1987. Definitions are subdivided into three categories(proved, probable, and possible), and four status modifiers (producing, shutin, behind pipe, and undeveloped) are available for each category, resulting in 12 composite descriptions. For any estimate, the category assigned reflects the degree of certainty of the estimate because the category definitions are based on the results of a test of "reasonable certainty." The status assignment provides an indirect measure of confidence. The classifications at the top of the list benefit from hard production data, while those lower on the list rely on more inferential data and assumptions to derive an estimate. These definitions are strictly deterministic. That is, a single figure is estimated as to the future recovery of oil and gas from a well lease field or for a company as a whole. That such estimates are imprecise is acknowledged by all professional reserve evaluators:"In the final analysis, the reliability of reserve estimates is the direct function of the available data and the confidence and integrity of the estimator." The SEC and SPE reserve definitions do not mention the use of probability analysis in reserve evaluations. In the SPEE monograph, use of probability analysis is explicitly rejected unless specifically requested by the client. In contrast, a 1983 World Petroleum Congress (WPC) report addressed the probabilistic approach. This report discussed how probability might be used in reserve definitions, particularly where the degree of uncertainty associated with the estimate is large. The resulting definitions may be summarized as follows. Proven reserves--those that have a probability of existence greater than 85 to 95% (a 90% value is used in the subsequent discussion). Probable reserves--the quantities added to proven reserves that extend the overall probability of existence to more than 50%. Possible reserves--the quantities added to proven and probable reserves that extend the probability of overall existence to more than 5 to 15% (a 10% value is used in the subsequent discussion). Note the terminology differences. Proven is used for the highest coincidence category instead of proved. As discussed later, the highest-confidence categories are not equivalent. The evolution of these reserve categories was influenced by oil companies'need for a better idea of ultimate potential recovery than available through deterministic definitions alone. Such information was especially necessary when substantial capital investment decisions were required with only limited reservoir information. A typical example is the North Sea. In certain areas of the world, the use of probabilistic analysis in reserve evaluation is commonly accepted both by the oil companies and regulatory authorities(e.g., the London Stock Exchange). We believe that reserve evaluation using SEC/SPE/SPEE deterministic reserve definitions is the most appropriate approach for the majority of U.S. oil and gas plays. Where reserve evaluation is required for technology or statistical plays (which, by their nature, yield wide variations in individual well performance and consequently are more suited to significant multiwell development program commitment), the probabilistic approach enhances traditional reserve determination methods.

Technology/Statistical Plays

Technology/statistical plays are not new. Volatility in oil price, the U.S. Tax Reform Act of 1986, Sec. 29 tax credits, and the unrelated high potentials of certain horizontal well developments have led to a recent emphasis on such plays. In many cases, these plays are characterized by a few excellent wells with a substantial number of average and marginal wells.

Copyright 1991 Society of Petroleum Engineers

JPT

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