Needed: An Updated Reserve Yardstick
Authors: Symonds Edward 
Published: December 2007

Introduction

In the days when energy supplies seemed virtually unlimited and real prices of crude oil and natural gas were declining steadily, concern over the extent of total remaining resources was slight. Today, the situation has come full circle. Mounting consumption and wastefulness during the period of plenty have led to the trend toward demand volumes plenty have led to the trend toward demand volumes far exceeding the supply potential of the industrialized countries.

Even if work energy demand slackens, but continues to grow at the more modest rate of approximately 5 percent annually, volumes consumed will by 1992 have doubled today's already high levels. At the same time, political involvement in energy resource prospects and availability has heightened, both because of their increased economic importance to the exporting countries and because of the reluctance of the importing countries to reconcile themselves to increasing dependence on imported supplies. The problem is particularly marked in the case of oil and gas, primary energy sources that can now be shipped worldwide so readily. Methods of resource evaluation have not kept pace with their greatly increased importance, both in economic projections and in political negotiations.

The concepts here developed were prepared for an expert international group that met to discuss these problems in New York in April this year. The purpose is to review the development of the commonly purpose is to review the development of the commonly accepted methods of resource evaluation and the key assumptions on which they rest in order to isolate sources of economic or related uncertainty that may render them inappropriate for the uses to which they nowadays often are put. The vital issues of enhancement vs abandonment and of price or other inflationary impacts are reviewed in the light of the estimation methods that have evolved, with a reference to the special problem of gas evaluations. In conclusion, recommendations are made, within the framework of the preferred usage of terminology and definitions, concerning methods that would fit better the accepted reserve concepts to the conditions of today's real international world, and at the same time increase the accuracy of the figures used.

TOWARD INCREASED PRECISION

Although narrow in purpose, the earliest estimates of oil reserves were highly inaccurate. They depended in the earliest instances on little more than the driller's own estimate of the reserves lying beneath a gusher that he had been lucky enough to bring in. As time went on, outside evaluations were offered to strengthen the driller's quest for funds for further exploration. But it has only been within the last 30 years that the evaluations generally have been accurate enough for bankers and others to regard them as adequate security for financing. The evolution of gas evaluations has been even slower in that gas discoveries were long considered worthless.

The wider spectrum of uses to which reserve evaluations now are put implies a far greater need for accuracy, with gas as well as oil. At the same time, for national policy and planning reasons, a new type of estimate - encompassing resources rather than the more narrowly defined reserves - has become necessary.

The purpose of reserve evaluations remains the same as ever: to estimate future revenues through calculations of the possible volume of production and of the price at which it will be sold. But far-reaching changes in the ownership of the raw material have extended greatly the need for such evaluations, while sometimes reducing their accuracy. The use of reserve evaluations as a borrowing base continues as before, except that the resources to be financed often are further depleted and the doubts over their life expectancy are correspondingly deepened. Certain procedures for such evaluations have been established by the banking and consultancy fraternity, and their methods and terminology will continue to depart somewhat from the practice that is being developed for national and international evaluations.

The multinational companies prepared the way for broader use of the evaluations.