Content of PetroWiki is intended for personal use only and to supplement, not replace, engineering judgment. SPE disclaims any and all liability for your use of such content. Proved Undeveloped Reserves are those Proved Reserves that are expected to be recovered from future wells and facilities, including future improved recovery projects which are anticipated with a high degree of certainty in reservoirs which have previously shown favorable response to improved recovery projects.
Content of PetroWiki is intended for personal use only and to supplement, not replace, engineering judgment. SPE disclaims any and all liability for your use of such content. Any added reserves to an already described reservoir, due to drilling, testing, production, etc., that establishes new data on reserves or production limits outside the previously known limits of the reservoir(s).
Valuations of oil and gas properties are needed for many of the same reasons appraisals are needed for homes, cars, jewelry, or any other assets. Lenders require some type of valuation when assets are used as collateral for a loan. Taxes are often assessed on the basis of property value. Property values have a bearing on rates for insurance policies and settlements after loss, damage, or foreclosure. Economic evaluations are seldom made simply for curiosity. In most cases, they are needed for some business reason. The primary method of evaluation discussed in this chapter is the deterministic cash flow method. Projected schedules of quantities of reserves from a deterministic reserves study projected in selected future time frames (usually calendar years) are displayed in the results, but computations are often made monthly. Schedules of future prices and costs are projected for the same time frames. Volumes are multiplied by prices, and costs are deducted to estimate future net revenue (FNR). Present worth calculations to factor in the time value of money are applied to the projected cash flow stream, and the results are reported. A table presenting a suite of present worth values over a range of discount rates is usually included. Individual projections are usually made by well or ownership entity. Each projection is classed in a reserves category (i.e., proved, probable, or possible) and more specific subclasses are common. The results are summarized at the reserves category level. This valuation procedure is based on the methods used to estimate reserves in the chapter on the estimation of oil and gas reserves in this section of the Handbook. Within the limits of the reserves category definitions, the parameters used in the estimation of reserves are generally average values. In the case of proved reserves, the results of the calculation are perceived to be best estimates.
Stranded gas is essentially gas that is wasted or unused. Estimates of remote or stranded gas reserves range from 40 to 60% of the world's proven gas reserves. The local market for gas is usually too small, or the gas field is too far from the industrialized markets. Sometimes excess gas reserves can be classified as stranded because they may result in oversupply of the market. Most stranded gas reserves are in gas fields that are totally undeveloped.
This paper presents methodology to analyze the reliability of reserves estimates filed with regulators in the U.S. and Canada. Using this methodology, we measured biases in the technical revisions presented in reserves reconciliation reports for 34 companies filing in Canada and 32 companies filing in the U.S from 2007 to 2017.
Filers in both Canada and the U.S. overestimated 1P reserves, and U.S. filers overestimated 1P reserves (51% positive technical revisions instead of 90%) more often than Canadian filers (72% positive technical revisions). Canadian filers underestimated 2P reserves slightly (54% positive technical revisions instead of 50%). Considering the entire reserves distribution, Canadian filers were moderately overconfident (underestimated uncertainty) and slightly pessimistic. U.S. filers, who report only 1P, were somewhere between (1) extreme overconfidence and neutral directional bias and (2) moderate overconfidence and extreme optimism.
Three groups of professionals can benefit from this study: (1) estimators, who can use the methodology to track their technical revisions over time, calibrate them, and use this information to improve future estimation procedures; (2) investors, who can analyze reported reserves estimates to compare volumes fairly; and (3) regulators, who will have quantitative methodology to suggest to filers to help them ensure that they are complying with appropriate criteria for 1P and 2P reserves and avoid significant reserves write-downs later.
Estimating reserves is an important process in most companies, as these estimates can have a large impact on company valuation. An estimate of reserves is inherently a probabilistic assessment; the different reserves categories (1P, 2P, 3P) quantify the uncertainty in this estimate. Unfortunately, humans are poor at assessing uncertainty; i.e., we are biased. Several authors have reported on the tendency for overconfidence and optimism in the petroleum industry (Capen 1976; Welsh et al. 2005; McVay and Dossary 2014).
Reliability in reserves estimates requires that, over a large number of these estimates, the frequency of outcomes would correspond to the probabilities of reserves stated by reserves definitions. Reserves volumes should be as reliable as possible so that investors can be confident they are comparing volumes fairly: “Tightly controlled and audited reserves volumes are meant to provide investors with the confidence that a barrel of reserves at Company A bears the same uncertainty as a barrel at Company B” (Beliveau and Baker 2003).
A collective term for the sum of proved and indicated reserves. Proved reserves are estimated with reasonable certainty to be recovered under current economic conditions. Indicated reserves are economic reserves in known productive reservoirs in existing fields expected to respond to improved recovery techniques where (1) an improved technique has been installed but its effect cannot yet be fully evaluated, or (2) an improved technique has not been installed but knowledge of reservoir characteristics and the results of a known technique installed in a similar situation are available for use in the estimating procedure.
The examples below are motivated by a set of frequently asked questions (FAQs), in turn highlighting common errors seen in forecasting, and are summarized by learning points that demonstrate why a consistent forecast definition is a pre-requisite for a lean forecasting process, applicable to resource estimation, business planning and decision making. It is not a requirement to use these definitions or the proposed forecasting principles but it is considered best practice; the examples will show that, the closer a company applies these definitions and principles, the leaner the overall forecasting, resource estimation and business planning process will be. Lean in this context means "getting it right the first time" and avoiding waste and unnecessary re-work. There are many situations, where the model objectives dictate another objective function than ultimate recovery; however, the forecaster should always plan for making a P10/P50/P90 forecast that is consistent with the resource estimates in addition to the primary objectives of the study. This should be done whether the customer asks for it or not. A reservoir engineer was requested to provide forecasting support for an exploration lease sale. A number of offshore blocks were on offer and he made a Monte Carlo simulation, based on seismically derived volumes, reservoir property trends, range of well count, development/operating costs and infrastructure requirements to point of sale. The objective functions were NPV and EMV for a significant number of prospects in these offshore blocks. This was exactly the information the exploration department had requested to determine the optimal bid value of these block.
Good diagnostic testing is often painstaking, time-consuming, and costly, but recent studies suggest that a lack of knowledge can be even costlier. Tiny soil samples may contain as many as 300,000 species of microbial life, but a Netherlands-based startup has figured out that between 50 and 200 of them can tell an operator if a drilling location will hold oil and gas reserves. For the past 2 decades, the use of DNA sequencing technology has largely been relegated to the domains of criminal forensics and the healthcare industry. One company is betting that the shale industry soon will join that list. DuPont is ramping up the commercial-scale implementation of its microbial enhanced oil recovery (MEOR) method after nearly a decade of development and testing of what it says is a low-risk way to improve production from mature fields.
Production and proved reserves in the Permian Basin’s Wolfcamp Shale and Bone Spring Formation are reaching new heights, and a new assessment from the US Geological Survey indicates the industry is just scratching the subsurface when it comes to what may be technically recoverable. Major oil discoveries by Armstrong Oil & Gas and ConocoPhillips have compelled the US Department of the Interior to reassess its estimate of undiscovered, technically recoverable resources in parts of Alaska. The list of the biggest gas plays in the US is being revised as the US Geological Survey creates new estimates based on additional drilling results and available rock samples. New at Number 2 is the Mancos Shale on the Western Slope of the Rockies with 66 Tcf in recoverable reserves.