Reserves and Probabilities: Synergism or Anachronism? (includes associated papers 24318, 24404, 24405 and 24413 )
Authors: Cronquist Chapman 
Published: December 2007

Summary.
This paper summarizes the "state of the art" in classifying reserves of oil and gas with the emphasis on (1)worldwide inconsistencies in terminology and (2) problems in reconciling reserves calculated with deterministic methods and those calculated and classified with probabilistic methods. Hypothetical models are developed to investigate possible relationships between reserves calculated with the two methods. These models indicate that the relationship between the reserves calculated from deterministic and probabilistic methods depends on the nature of the statistical distributions of the input variables;chiefly, the skewness of those distributions.

Background
Experienced reservoir engineers know that uncertainty exists in geologic and engineering data and, consequently, in the results of calculations made with these data. The degree of uncertainty in most reservoir engineering calculations, however, usually is not formally quantified. Most reserve calculations in the U.S. industry have been deterministic, with the degree of uncertainty indicated by classifying reserves as proved, probable, or possible (PPP). The addition of status categories-e.g., producing, behind pipe, or undrilled-to each reserve classification conveys additional information about the degree of uncertainty. The assignment of status categories is obvious; the assignment of reserve classifications, however, is rather subjective, despite efforts to develop global standards. In geologic settings and operating areas where the industry has substantial experience, there has been no compelling reason to use stochastic methods for reserve estimation. This is especially true for proved producing reserves, which are generally considered the least uncertain classification and category. However, in new geologic settings (for example, coalbed methane)and new operating areas (for example, the North Sea), the industry has used probabilistic methods to calculate and classify reserves in an attempt to assess the high degree of uncertainty typically associated with these types of ventures. The different approaches to reserve estimation and classification-deterministic vs. stochastic-have contributed to the problem of developing global standards for reserve classification.

Current Industry Practice
Most systems used to classify reserves of minerals are based on concepts first proposed by the U.S. Geological Survey (USGS), which are exemplified by what has come to be known as the "McKelvey box," shown in Fig. 1. This system classifies mineral resources using two attributes:degree of geologic assurance andfeasibility of commercial extraction. Although initially proposed to classify "hard" mineral resources like coal, the concepts embodied in this system have been adopted by the oil and gas industry for the classification of reserves of crude oil and natural gas. In this context, "reserves" are the portion of the resource base that has been discovered and has a high feasibility of commercial extraction. As noted by McKelvey, the oil industry terms "proved," "probable," and "possible" have been associated with the terms "measured," "indicated," and "inferred," as shown in Fig. 1, even though there is not a one-to-one correspondence in the concepts embodied in the two sets of terms. The meaning of the PPP terms varies between the major producing countries of the world and differs between various agencies within many countries. Private industry and governmental and regulatory agencies frequently use slightly different terminology or attribute different meanings to the same terms. Table 1, which shows the terminology in use by various agencies reported by the 1987 World Petroleum Congress, is an example of these inconsistencies. Although the PPP terms are widely used, the terms appear to imply different levels of uncertainty from one country to another. For example, both Austria and The Netherlands define proved as having more than 90% certainty and probable as having more than 50% certainty. The U.K., however, used the qualification "virtually certain" to define proved reserves, with probable reserves having more than 50% certainty. Three systems were reported for Australia. The Bureau of Mineral Resources reported using the PPP system. The Australian Minerals and Energy Council reported using a quantified PPP system, with 93, 60, and 5% certainty required for each of the three classification levels. The Natl. Energy Advisory Committee reported using a modified McKelvey system. Terminology differs between various groups in Canada. Most operators, consulting firms, and banks use the PPP system.
JPT
P. 1258⁁