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60 comments on A Primer on Reserve Growth - part 1 of 3

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Euan Mearns on December 18, 2006 - 1:03pm Permalink | Subthread | Comments top
Rembrandt - great to see you tackling some of the core problems in trying to better constrain and understand the timing of world peak oil.

The issue of reserve growth is a very complex one that needs to be studied in detail.

I think this is a key statement and I have to admit to not fully understanding this phenomenon but want to document a number of "behavioural" points which I think may be releavnt to the overall debate.

  1. The more wells that are drilled on a field the more reserves get shifted from 2P to 1P reserves - so growing 1P reserves is a natural consequence of drilling activity.

  2. In a new province, such as the North Sea was 35 years ago, companies making large discoveries often saw advanatage in concealing the actual size of discoveries from the authorities - so as to not attract too much attention for taxation purposes.

  3.  Companies would often adopt a very conservative approach to reserves estimates for investment purposes - better to underestimate and have a field turn out better than expected than to overestimate and make a loss.

  4.  Giant fields have tended to produce more oil than objective estimates of their reserves.

So point 1 leads naturally to reserves growth with time and points 2 to 4 have tended to result in declared reserves being underestimated with the inevitable consequence of subsequent reserves growth.

  1.  In smaller fields companies have tended to over-estimate reserves.

  2.  I wonder if companies that are struggling now to make new discoveries and to replace their reserves may be inclinded to over-state the position of new discoveries.

In short, I speculate that reserves under-estimation may be a feature associated with times of plenty and production growth and wonder if reserves over-estimation and shrinkage might characterise the production decline phase stemming from points 5 and 6 - note this is speculation.
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Rembrandt on December 18, 2006 - 5:33pm Permalink | Subthread | Parent | Comments top
The point you make are all very valid, and make the outlook very troublesome. I will address three regions in the next part which will encompass the reserve reporting issue. All these underestimates are reported as if they are based on technological advances, which they are mostly not. Since reserves seems to be reported more properly now (less is found so the data can't be that much obfuscated) and because past data is more properly assessed for most countries (at least in IHS Energy and WoodMackenzie databases) it would appear to me that reserve growth will decline as discoveries decline. Also more about this in the next parts.
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step back on December 22, 2006 - 11:42am Permalink | Subthread | Parent | Comments top
Pardon my intrusion.
Given that this is a "Primer" it behooves us to provide some pointers for newcomers regarding what a "Reserve" number is to begin with.

  1. Wikpedia here tries to explain that reserve numbers have to do with what is "economically feasible" at a given time. If you want to better grasp that concept and differentiate between "reserves" and the total amount of oil that is actually down under, play this mind game: Instead of boring (drilling) a few thin pipes down into the ground after you have found a promising geological formation, you dig out the entire area to form a canyon that is 10x the size of the Grand Canyon, siphoning off all the oil you find as you dig. Of course the economic costs for such a method will be astronomical. In truth it is not "economically feasible". The reserve numbers will be significantly lower than actual oil below.
  2. News reporters generally don't know "Jack" s**t about what the word "reserves" means.
  3. Many a cornucopian fruit cake confuse growth of the human-generated reserve number with belief in abiotic oil.
  4. Wikpedia here provides a list of major fields and estimated recoverables. Included in their list is Ghawar.

We now return you to the regularly scheduled program.
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BobCousins on December 23, 2006 - 9:32am Permalink | Subthread | Parent | Comments top
When you refer to "companies" do you mean IOCs or NOCs? The points you make appear to refer to IOCs. I assume that NOCs are not worried about taxation, for example.

Given that the operating requirements of NOCs and IOCs are somewhat different, is is helpful to clarify whether observations about reserves are specific to NOC or IOC, or common to both.

I understand that something like 90% of oil reserves are held by NOCs. While we may have more data about the operation of IOCs than NOCs, I think it is important not to draw conclusions that are specific to IOCs.

This is why I am wary of comparisons between the US or North Sea and the ME. We can't assume that NOCs in the ME operate exactly the same way as IOCs elsewhere.

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