"Reserves Definitions-Clarifying the Uncertainties"
Authors: Jung H. 
Published: March 2010

Reserve definitions generally used in North America are vague, allowing for a range of interpretations of the definitions themselves and resulting reserve estimates. There has, to-date been little progress in moving to definitions which provide a clearer description of the uncertainties. This paper looks at current industry practice and the complex issues around adoption of reserves definitions which address probabilistic analysis methods.

Introduction

Reserve estimates underpin all aspects of the oil and gas business, including exploration and development, transmission, regulation, financing and investment. These reserve estimates always involve some degree of uncertainty, and While these uncertainties may be well understood by the estimator, they are seldom well defined for the end user. The degree of risk-aversion may vary considerably, between users of these estimates (for example, debt financing typically focuses on high probability figures only, while strategic planning may also consider low probability data). This necessitates a range of reserve estimates with differing associated probabilities.

The evolution of reserves determination and reserves definitions has been related in large part to the quantity and quality of data available to those preparing reserves estimates. Methods of sampling, measuring, testing and recording data and interpretations have become increasingly sophisticated, aided by the relatively recent explosion in computer technology. Reserve definitions have not kept pace with these advances: Many of the reserves definition in use today still use terms such as reasonable ertainty. What does this term really mean? The interpretation of this term is dependent on who performs the reserves determination, their experience level, the method or the approach taken in the reserves determination and the end use of the resulting reserves estimates.

The objectives of the standing Committee on Reserves Definitions of The Petroleum Society (hereinafter referred to as the CIM Reserves Committee) in its May 1993 report (DeSorcy et l.) (1) were to narrow the interpretations; clarify the uncertainties associated with reserve estimates; and provide definitions suitable for use with deterministic and probabilistic methods. The report proposed the following probability ranges for reserve categorization:Proved: 80% or greater*Probable: 40 to 80%Possible: 10 to 40%

The intent of the report was not to require that probabilistic methods be used for estimating reserves, but to promote the understanding that, even for deterministic estimates, there is an implicit probability level involved. The selection of these probability ranges was a compromise intended to provide a more precise guide to defining reserves (compared to existing definitions which relied on terminology such as reasonable certainty) but not to materially change industry practise.

A fundamental issue that the definitions were attempting to address was quantification of probabilities associated with each reserve category. However, by including these probabilities in thedefinitions certain questions arise:Given that summation of a number of uncertain events probabilistically is not equal to an arithmetic summation (excepting the mean), where is the proved 80% certainty to be achieved-at the entity level or field level or the corporate total?How does one achieve roughly these desired probability levels using deterministic methods? This paper will focus primarily on proved reserve estimates.

The results of a survey sent by The Petroleum Society Reserves Committee to industry regarding the subject