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GEOHORIZONS |
1 Rose & Associates, LLP., 3405 Glenview Avenue, Austin, Texas 78703; prrose{at}roseassoc.com
Pete Rose has been deeply involved since 1983 in the evolution of the emerging field of petroleum exploration and production (E&P) risk analysis, consulting extensively with many major, independent, and national oil companies. In 2000, he founded Rose & Associates, LLP., today a leading international consulting firm specializing in E&P risk analysis. He is the author of Risk Analysis and Management of Petroleum Exploration Ventures, AAPG Methods in Exploration 12 (2001), as well as many other publications on basin and play analysis, petroleum resources and reserves, and E&P risk analysis. From 2001 to 2003, he wrote a monthly column, The Business Side of Geology, for the AAPG Explorer. In 2005–2006, he was AAPG's 89th president.
Proved reserves is the class of crude oil and natural gas resources in whose recovery we have high confidence. Investors, bankers, governments, and the media perceive proved reserves as the basic assets of petroleum exploration and production (E&P) companies, and downward revisions of proved reserves, especially if they are unanticipated, negatively impact the value of such firms. Many reserves write-downs stem directly or indirectly from a long-standing, fundamental flaw in the definition of proved reserves as an estimate of future production that the estimator is reasonably certain will be achieved or exceeded. However, because no specific confidence level (= probability) is specified for reasonable certainty, and different estimators and companies have different standards, proved reserves is an inconsistent metric, so estimators cannot be accountable. This basic unaccountability taints the entire field of reserves estimating.
The proved-reserves issue is only one aspect of a larger conceptual and procedural problem in petroleum E&P: how to best measure and express the uncertain quantities of oil and gas thought to be recoverable from wells, properties, fields, prospects, and plays owned by E&P companies. Traditional methods are deterministic, where single-number estimates represent uncertain future production volumes or segments of variously uncertain future oil or gas recoveries (proved, probable, and possible). Probabilistic methods, where ranges of possible recoverable volumes are associated with their perceived likelihood, have, by now, been widely embraced by the exploration part of E&P, whereas the production/development arm of the industry has been slow to surrender the use of determinism.
Considering six clear advantages of the probabilistic approach, it may be difficult to understand why determinism persists, but there are pragmatic reasons why some segments of E&P, the accounting profession, the banking and financial community, news media, and governmental regulators and administrators prefer to use deterministic values. Joint technical committees of the leading professional E&P societies are currently addressing these issues in the hope of achieving an improved, more uniform approach.
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  M. McLane, J. Gouveia, G. P. Citron, J. MacKay, and P. R. Rose Responsible reporting of uncertain petroleum reserves AAPG Bulletin, October 1, 2008; 92(10): 1431 - 1452. [Abstract] [Full Text] [PDF]
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 S. C. Atchley, D. M. Cleveland, and L. W. West A case for renewed development of a mature gas field: the Devonian Swan Hills Formation at Kaybob South field, Alberta, Canada Bulletin of Canadian Petroleum Geology, June 1, 2008; 56(2): 165 - 190. [Abstract] [Full Text] [PDF]
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