Reserve Estimates: Uncertainty And Its Implications
Authors: Elliott D.C. 
Published: March 2010

The determination of oil and gas reserve volumes and their values is subject both to uncertainty in the parameters used to make the estimates and to the biases of individuals and organizations making and using the estimates. The traditional reserve classification, into Proved, Probable and Possible categories, although generally presented as deterministic, implicitly recognizes the stochastic nature of the estimation process. Practical considerations of time and limited knowledge of the techniques tend to limit the use of stochastic methods. Even when deterministic methods are used, however, uncertainty remains and the implications of this uncertainty should be understood. Common reserve estimation methods aim for a high degree of certainty in proved reserves estimates, but the usual approach often yields a value of lower probability. A misunderstanding of the fundamental, and unavoidable, stochastic nature of oil and gas reserve estimation may be trivial at the level of an individual property, but can have a significant impact when reserves are aggregated, Uncertainty cannot be avoided; it can be managed, but only when it is recognized and understood.

Introduction

The determination or oil and gas reserves and their values is an important part of the work of many professionals in the oil and gas industry. However, the actual volumes of oil or gas that are recoverable are never known with certainty (except, perhaps, at the time of the abandonment of a pool J. and the process of estimation and the results are often matters of lively debate.

Because reserves estimation involves parameters whose values are to a greater or lesser degree uncertain it is a fundamentally stochastic process. If it were deterministic, everyone would get the same answer r, which is certainly not the case. We can choose to use (pseudo) deterministic or stochastic methods to make our estimates. Whichever approach is taken, there are significant and unavoidable implications arising from the fundamentally stochastic nature of serve determination. We must understand these in order to fully understand the results of reserve estimates.

Reserves Definitions

Reserves definitions have been established by various financial, governments and professional organizations including The Petroleum Society of CIM (1994) Conquest (1991) reviewed these definitions and although they vary slightly typical categories (see Figure 1) are,Proved reserves are those reserves that exist with reasonable certainty, that is, there is a high probability typically 80 to 90%) that a greater volume exists.Probable reserves are those reserves for which the probability that a greater volume than the proved + probable volume exists (typically 50%).Possible reserves are those reserves for which the probability that a greater volume than the proved + probable + possible volume exists is low (typically 10%)

All the organizations recognize proved reserves and most also recognize a probable category. Not all definition specify a probability the U.S Securities and Exchange Commission criterion for proves reserves, for instance, gives "reasonable certainty" as the criterion.