THE EVOLUTION OF THE WORLD'S HYDROCARBON RESERVES
by J.H. Laherrère e-mail: jean.laherrere@wanadoo.fr
lecture given in French on June 17, 1998 in Paris to SPE France
Introduction
The reserves of an oil or gas field cannot be measured directly but only estimated on the basis of geological and engineering knowledge and principles. Like all estimates, reserve estimates are subject to uncertainty. Furthermore, many are confidential or subject to "political" pressures. Companies use different numbers for internal and external purposes, and different companies involved in a particular field may report different estimates. It is accordingly very difficult to obtain valid current estimates, and even more difficult to determine their evolution over time.
What are we talking about?
It is difficult even to clearly distinguish what is classed as an oilfield from what is classed as a gasfield. The US Department of Energy lists 46 000 fields in the United States but 4500 of them are classed both as oilfields and gasfields. Of the 18 000 fields in Petroconsultants' database, about a thousand lack reserve data, meaning for the most part that an announced discovery was not substantiated. Fields may have different names in different databases, and may change their names where they straddle concession or national boundaries. For example the North Field in Qatar was found in 1971, but an extension into Iran is known as the South Pars Field and attributed to 1991. Reports even of world production range widely. The 1996 production of what was termed "oil" was variously reported as 62.7 Mb/d for crude oil (IEA); 64.1 Mb/d for crude oil and condensate (EIA/DOE); and 74.4 Mb/d for "liquids" (EIA/DOE). Synthetic oil is sometimes included, sometimes not. For these reasons, Cumulative Production has an accuracy of no more than ten percent.
The proportion of liquids derived from gas ranges from 26% (including 21% of NGL) in the United States to 6% in the world as a whole.
There is confusion between Initial Reserves, namely the total discovered, and Remaining Reserves, namely the reserves as of a reference date. There is confusion between Reserves and Resources, as well as between conventional and non-conventional categories. There is no consensus on the definition of these terms. Reserves yield production, but much of the resource base will never achieve reserve status. Some are non-economic; some would take more energy to produce than they deliver; and some will remain undiscovered due to the practical limits of exploration activity in the foreseeable future.
The initial reserves of a field will be known absolutely only on the day when it is finally abandoned, when they will equate with the Cumulative Production. Prior to that they are known only within a range of uncertainty which should be expressed in terms of a probability range. The traditional method, known as the Determinist Method, is used mainly in the United States, and classifies reserves as Proved, Probable or Possible. It ignores the range of uncertainty, giving a single number for each class of reserves. Only the Proved class is accepted for financial reporting purposes.
Figure 1 Curves of probability
Figure 1 illustrates a probability curve that represents the uncertainty of reserves in a field. The probability ranking on the Y-axis is that the actual number is greater than the corresponding value on the X-axis. Thus, in this particular example, the low ("mini-") case, with a probability of 95%, is 20 Mb whereas the high ("maxi-") case, with a probability of 5%, is 200 Mb. It means that there is a 90% probability that the actual reserves will fall between 20 and 200 Mb. Refining the analysis further, we may recognize the Mode value of 40 Mb which is the most likely, coming at the point of inflection, with a 65% probability; the Median of 60 Mb with a 50% probability; and the Mean of 80 Mb with a probability of 35%.
Superimposed on Figure 1 are the ranges of what are termed Proved (P); Proved + Probable (2P) and Proved + Probable + Possible (3P). It is necessary to show them as ranges because there is no consensus on how to define them.
There can be no absolute ranking of probability because each field in unique, but the distribution of probability can be built up from an evaluation of the probability ranking of the several physical parameters, such as reservoir thickness and porosity, that control the size of the reserves.
In practice, there is a tendency to prefer the simpler determinist method, which allows the evaluator to deliver the desired results, rather than deal with the more correct but more complex probability method. In the real world, there are pressures to both over- and under-report.
Motives for declaring the minimum:
Explorer: to avoid being regarded as a dreamer
Engineer: to reduce the risk of being contradicted (a mean estimate implies being wrong 60% of the time),
Company: to secure apparent reserve growth over time which presents a more attractive financial image, may reduce tax, and in some cases facilitate its competitive position
Motives for declaring the maximum:
Explorer: to make a small prospect sufficiently economic to pass corporate hurdles
Company: to augment its share values; sale value; the stock options of its executives; overcome government constraints to depletion rate (Frigg)
Countries: to provide collateral f or debt (Mexico)
OPEC: to increase quota (large increases in the late 1980s)
Soviet Union: to show the maximum theoretical recovery ignoring economic constraints
Motives for declaring the mean (the expected value):
Those seeking a valid national total. The mean value of a large number of fields is the sum of the mean value of each individual field, despite the fact that, statistically, 60% of the cases will prove incorrect.
Most international companies are quoted on the American Stock Exchange and are subject to the rules of the Securities and Exchange Commission, which were designed to protect investors from unscrupulous promoters in the onshore environment of the United States. These regulations accept, for financial purposes, only Proved reserves, based on the catchment area of producing wells (normally 40 acres) as deemed "reasonably certain" in relation to the technology and economics, including oil price, in effect at the end of the year in question. This practice naturally gives rise to "reserve growth" over time as the fields are drilled up and as probable and possible reserves are converted to proved status. The concept of "reserve growth" is much misunderstood, being commonly attributed to technological progress, when in reality it is mainly an artifact of the reporting procedure. There are many vested interests that benefit from the ambiguity surrounding reserve estimation and the illusion of "reserve growth" which conceals the reality of depletion.
The weakness of the system has been the subject of comment by many experts:
"There are currently almost as many definitions for reserves as there are evaluators, oil and gas companies, securities commissions and government departments. Each one uses its own version of the definitions for its own purposes" DeSorcy 1993 (1)
"The resource base [of the former Soviet Union] appeared to be strongly exaggerated due to inclusion of reserves and resources that are neither reliable nor technologically nor economically viable" Khalimov 1993 (2)
"An industry that prides itself on its use of science, technology and frontier risk assessment finds itself in the 1990s with a reserve definition more reminiscent of the 1890s" "illegal addition of proved reserves" Capen 1996
"Why our reserves definition don't work anymore" Caldwell 1996
"Virtual reserves - and other measures designed to confuse the investing public" Tobin 1996
"The term "reserves" often is treated as if it were synonymous with "proved reserves". This practice completely ignores the fact that any prudent operator will have, at least internally, estimates of probable and possible reserves" Ross 1998 (3)
Defining Proved Reserves
The problem of defining what is meant by the commonly used term, Proved Reserves, has been addressed many times with a wide range of proposals. In fact, the term has been variously applied to reserves having a probability ranking from 50% to 95%. Some of the approaches are listed below:
1961 API : Proved = "beyond reasonable doubt"
1977 SEC-FASB : Proved = "with reasonable certainty"
1979 Kalimov : USSR A + B +C1 reserves = Proved Reserves
1979 Esso : Proved (P) = 95% probability; Proved + Probable (2P)= 50% probability; Proved + Probable + Possible (3P) = 5% probability
1980 AAPG, SPE and API : uses SEC definitions
1983 WPC (Martinez) Proved = "reasonable certainty" or 90% probability
1985 Grossling : "expected value = 2.3 Proved for Non-OPEC; 1.5 Proved for OPEC
1985 Bourdaire (4) : Proved (P) = 95% (minimum); 2P = mode; 3P = 5% (maximum); mean = "expected value" = Proved + 2/3 Probable + 1/3 Possible
1987 WPC (Martinez) Proved = 85%-95% Probability = "high degree of certainty"
1990 Laherrère (5) : Proved(P) = 85%-95% ; 2P = 50% ; 3P = 5%-15%
1991 Ross notes that "reasonable certainty" is treated by some as having a probability of 65% or, even worse, 50%.
1991 Caldwell proposes that "reasonable certainty" equates with a 75% probability, between Proved and Probable
1993 DeSorcy : Proved = 80% probability; Probable = 40%-80% probability; Possible = 10%-40%; "Expected Reserves" = Proved + 0.6 Probable + 0.25 Possible; "Established Reserves" = Proved + 0.5 Probable
1994 Ross : Proved = 75% probability
1994 NPD drops Proved, Probable and Possible in favour of 90%; 50% (called Most Probable?) and 10%
1994 PdVSA (Roger) uses a probabilistic range of 80-50-20%
1996 SPE/WPC proposes a hybrid system whereby the Determinist terms are defined as follows : Proved = "reasonable certainty", but also having a "high degree of confidence"; Probable = "more likely than not"; Possible = "less likely than not"; and the Probabilistic terms are defined as follows: Proved (P) =80% probability; Proved + Probable (2P) = 50% probability; and Proved + Probable + Possible (3P) = 10% probability
1997 SPE/WPC final text : Proved = P90.
The issue of reserve definition has become the prime responsibility of the a committee formed by the World Petroleum Congress and the Society of Petroleum Engineers under the direction of A. Martinez. It has endeavoured, without much success, to find a compromise between the determinist and the probabilist schools of thought. One of the obstacles to progress has been the huge amount of work and re-education that would be involved in financial reporting if the traditional determinist method were to be changed. An obvious solution would be to persuade the SEC to follow the UK accounting procedure that requires reserves to defined as Proved + Probable, which is normally taken at a P50 value, although strictly speaking it should be the Mean, with a Probability of about 40%. A discussion with SEC is presently in progress (Martinez July 1998).
Summing reserves of more than one field
The way in reserves are defined has much impact on cases where reserves from more than one field are summed to give national or corporate totals. Adding the Proved reserves of individual fields under-states the total. The proper procedure is to sum the mean values.
In the case of determining the reserves of a field from the constituent parameters, such as reservoir thickness, porosity, saturation etc., also requires proper handling. Multiplying the low case value for each parameter does not give the Proved reserves for the field as a whole: thus multiplying five parameters each having a probability of 90% would give a total of 0.9 power 5, namely 59%. The Most Likely (mode) value for the field is obtained by multiplying the mode value for each parameter.
There has been a tendency to use Monte Carlo simulations to make probability calculations, but it is not necessary to go to this length if one makes the reasonable assumption that the distribution of the parameters is lognormal (6) (7).
Norwegian System
The Norwegian Petroleum Directorate operates a particularly thorough and sound procedure recognizing as many as twelve categories, of which only three are covered in the SPE/WPC classification, in all cases referring to initial reserves and resources.
0
Reserves where production is ceased
1
Reserves in production
2
Reserves with an approved development plan
3
Resources in a late planning phase (PDO approval within 2 years)
4
Resources in an early planning phase (PDO approval within 10 years)
5
Resources which may be developed in the long term
6
Resources where development is not very likely
7
Resources in new discoveries for which the evaluation is not complete
8
Resources from possible future measures to increase the recovery factor
(measures which are not planned, possibly superseding present-day technology)
9
Resources in prospects
10
Resources in leads
11
Unmapped resources
The
volumes declared (Feb.1997) by the NDP are:
|
|
|
Oil |
Gas |
NGL |
Total |
|
|
|
M.m3 |
G.m3 |
Mt |
M.m3 o.e. |
|
0: Production ceased |
0 |
41 |
0 |
41 |
|
|
1: In production |
2702 |
1639 |
122 |
4499 |
|
|
2: Development approved |
448 |
294 |
31 |
782 |
|
|
|
subtotal = reserves |
3150 |
1974 |
153 |
5322 |
|
3: Late planning phase |
540 |
365 |
23 |
935 |
|
|
4: Early planning phase |
123 |
655 |
21 |
805 |
|
|
5: Can be developed in the long term |
135 |
435 |
24 |
601 |
|
|
6: Development very uncertain |
24 |
47 |
1 |
72 |
|
|
7: New discoveries |
10 |
17 |
0 |
27 |
|
|
|
Total discovered (resources) |
3982 |
3493 |
222 |
7762 |
|
|
|
|
|
|
|
|
Reserves as % of resources |
79% |
56% |
69% |
69% |
|
It should ne noted that Norway accords Reserve status to no more than 69 percent of its discovered resources.
The U.S. oil resource agencies (Department of Energy , Department of the Interior Geological Survey and Mineral anagement Service) that are not bound by the SEC regulations do not use the terms Proved, Probable and Possible.
The Minerals Management Service, which is responsible for the offshore, explains its definitions:
"Cumulative probability distributions: A distribution
showing the probability of a given amount or more occurring. These
distributions include the values for the resource estimates presented
throughout this report: a low estimate having a 95 percent probability (19 in
20 chance) of at least that amount (F95), a high estimate having a 5 percent
probability (1 in 20 chance) of at least that amount (F5), and a mean (m)
estimate representing the average of all possible values. Values of the
fractiles are not additive. These distributions are often referred to as
S-curves.
Deterministic : a process in which future states can be forecast exactly from knowledge of the present state and rules governing the process. It contains no random or uncertain components" It is obvious that they regard the determinist method as stretching credulity, given the many uncertainties".
Recovery Factors
The growth of reserves is often taken as a reflection of an improvement in the percentage of the oil-in-place to be recovered. We must note that the uncertainty relating to the size of the reserves is large at the outset but reduces progressively until the abandonment of the field when all uncertainty has been removed. By contrast, the oil-in-place is estimated at an early stage from seismic surveys and other data, and the uncertainty does not improve over the life of the field unless additional seismic surveys and drilling are undertaken. Recovery factor is used to estimate reserves only at the beginning of the project: later estimates come from well performance and simulation techniques. This is illustrated, for example, by the fact that a manual on reservoir engineering issued by the Institut du Petrole Francaise (8) makes no reference to the use of recovery factor. The fact that recovery factors are commonly quoted in round numbers, such as 30%, 1/3, 40%, 50%, demonstrates what an imprecise method it is. NDP has taken 50% for its last oil estimates and 75% for its gas estimates.
It is clear that, in the same way as reserves should be reported as a range, so should the even more uncertain values of oil-in-place. Furthermore, the probability ranking of the reserves should be match by an equivalent ranking of the oil-in-place. Knowledge of both improve over the life of a field but not necessarily proportionately.
For these reasons, an improvement in apparent recovery factor normally simply reflects the progressive addition of Probable reserves that were omitted from the initial estimate.
The notion of "reserve growth" largely reflects the bad practices widely used in reserve estimation. Figure 2 illustrates the position.
Figure 2. Evolution of the uncertainties of reserves and recovery factor
Published Reserves
Published reserve estimates range widely, and are commonly contradictory as reported by Greenpeace on Internet.
|
Table 1 |
Global and Regional Oil Reserves at the end of 1995
(Gb) |
|||
|
Regions |
OGJ |
World Oil |
Petroconsultants |
USGS |
|
North America
|
77 |
77 |
64 |
103 |
|
South America
|
78 |
85 |
51 |
74 |
|
Europe |
16 |
31 |
30 |
37 |
|
FSU |
59 |
191 |
76 |
121 |
|
Africa |
73 |
79 |
53 |
72 |
|
Middle East |
660 |
590 |
439 |
583 |
|
Far East |
42 |
51 |
38 |
62 |
|
Australasia |
2 |
4 |
3 |
4 |
|
TOTAL |
1007 |
1107 |
746 |
1056 |
Notes:
OGJ = Oil and Gas Journal - Estimated Proven Reserves at 1.1.96.
World Oil - Estimated Proven Reserves at 21.12.95.
Petroconsultants - Assessed Reserves, 1995.
USGS = United States Geological Survey - Identified Reserves at 1.1.93. adjusted for subsequent production from 1993 to 1995.
The US DOE/EIA (Annual Report 1996) gives in Table 5 these values that differ by factors of one to three (especially for Non-OPEC countries where there is a average discrepancy by 1.7 ), yet it does not comment on the discrepancies nor indicate a preference.
|
International Oil (Million Barrels) Reserves as of
December 31, 1996 |
||||
|
|
(major discrepancies in bold face) |
|
|
|
|
Rank |
Country |
Oil &
Gas Journal |
World Oil |
|
|
1 |
Saudi Arabia |
261 500 |
261 800 |
|
|
2 |
Former U.S.S.R. |
57 000 |
183 831 |
|
|
3 |
Iraq |
112 000 |
112 000 |
|
|
4 |
Kuwait |
96 500 |
94 700 |
|
|
5 |
Iran |
93 000 |
90 500 |
|
|
6 |
United Arab Emirates |
97 800 |
63 510 |
|
|
7 |
Venezuela |
64 878 |
72 603 |
|
|
8 |
Mexico |
48 796 |
48 472 |
|
|
9 |
Libya |
29 500 |
29 500 |
|
|
10 |
China |
24 000 |
34 055 |
|
|
|
Top 10 Total |
884 974
(87%) |
990 971
(85%) |
|
|
11 |
United States |
22 351 |
22 050 |
|
|
12 |
Norway |
11 234 |
26 874 |
|
|
13 |
Nigeria |
15 521 |
20 800 |
|
|
14 |
Algeria |
9 200 |
12 960 |
|
|
15 |
Indonesia |
4 980 |
9 241 |
|
|
16 |
Brazil |
4 800 |
6 970 |
|
|
17 |
Canada |
4 894 |
5 537 |
|
|
18 |
United Kingdom |
4 517 |
5 003 |
|
|
19 |
India |
4 333 |
5 049 |
|
|
20 |
Malaysia |
4 000 |
5 170 |
|
|
21 |
Angola |
5 412 |
3 601 |
|
|
22 |
Oman |
5 138 |
3 614 |
|
|
23 |
Qatar |
3 700 |
3 916 |
|
|
24 |
Egypt |
3 696 |
3 700 |
|
|
25 |
Yemen |
4 000 |
3 100 |
|
|
|
|
|
|
Discrepancy |
|
|
Top 25 Total |
992 749 (97%) |
1 128 556 (97%) |
14% |
|
|
OPEC Total |
788 579
(77%) |
771 530 (67%) |
-2% |
|
|
Non-OPEC |
230 270 (23%) |
388 574 (33%) |
69% |
|
|
World Total |
1 018 849 (100%) |
1 160 104 (100%) |
14% |
We may note that there is a discrepancy of 14 percent for the world as a whole and as much as 69 percent for the Non-OPEC countries. The uncertainties are evident, yet these estimates are quoted in exact numbers implying a more than justified accuracy. Such estimates should be quoted to no more than two significant figures.
Comparison of data from the Oil & Gas Journal and World Oil
The Oil & Gas Journal gives its data in the last few weeks of the year in question, and the figure can accordingly be no more than an estimate, whereas World Oil publishes its data in August of the succeeding year. Both journals publish what are reported as Proved Reserves. World Oil corrects the data in their subsequent report but the Oil & Gas Journal does not.. We have compiled the data from these two sources and compared them with the backdated Proved + Probable (P50) data provided by Petroconsultants. Backdating attributes any reserve revisions to the discovery date of the relevant fields. It does not take into account the impact of subsequent investments but certainly provides a better picture of the discovery trend than accepting, on a current basis, the revisions, which are mainly due to flawed estimation procedures rather than any dynamic addition. It would be still better to backdate to the date of the commitment of investment rather than to the discovery itself, but to do so is beyond the available database.
Figure 3 compares the two data sets for the FSU. The abrupt fluctuations in 1968-71, 1980-85 and in 1991, shown by World Oil is as implausible as is the constant value reported by the Oil & Gas Journal.
Figure 4 shows equally implausible World Oil fluctuations for the United Kingdom. Figure 5 shows the other anomalies in Norway, where the data is in the public domain, and Figure 6 illustrates Iraq and Saudi Arabia where large spurious increases were announced for quota reasons.
Figure 3. FSU : Comparison of different data sets
Figure 4 UK : Comparison of different data sets
Figure 5 Norway : Comparison of different data sets
Figure 6 Iraq and Saudi Arabia : Comparison of different data sets
Figure 7 Trends of World data
Figure 7 illustrates the three data sets for the world as a whole with the trends extrapolated. World Oil shows a rising trend; the Oil & Gas Journal shows a stable trend; and Petroconsultants, which records properly backdated Proved + Probable (P50) reserves, shows a plausible decline, remembering the production inexorably consumes reserves unless matched by new discovery. With the current discovery rate down to about 6 Gb/a, about a quarter of consumption, it can be no surprise that the reserves are declining.
Reserves reported by companies
Many companies provide reserve data on the Internet, and much useful information can be gleaned from analysing the reports in detail. The data are shown on the following table. It is revealing that Exxon admits that only 30% of its discoveries are booked as Proved, which explains why it attributes only 7% of the increase over the period quoted to "Improved Oil Recovery". This contrasts with Mobil which recognizes only Proved yet attributes 44% to IOR. Since all these companies have comparable worldwide positions and apply similar technological skills, the wide range in reporting procedure is truly remarkable, and a cause for serious concern.
|
http://www. |
Proved oil/ |
% |
% |
% |
|
|
|
Proved+Unproved
|
Revision |
IOR |
Extension
& |