RESERVES DETERMINATION — IMPLICATIONS IN THE BUSINESS WORLD

Abstract

The success of many business ventures can depend on an accurate assessment of commercial hydrocarbon reserves. The quantification of a reserve base will influence many phases of the venture, including the extent of an exploration program, negotiations with potential customers, evaluation of development alternatives, financial results involving reserves- related depreciation, design of production and processing facilities, and the valuation of the venture. If the reserve estimates are too conservative, exploration and delineation expenses can be excessive, financial results understated and market potential underestimated. On the other hand, overly optimistic estimates can lead to commitments which cannot be met, and inadequate returns on investments.

Although reserves estimates will change with time and development, it is important to have the most realistic estimate in hand at all times. In all activities, consistency in reserves definitions will be an important factor in maintaining the most accurate assessment of the resource. Unfortunately, common reserves definitions do not have industry- wide acceptance. Progress has been made by organisations such as the Society of Petroleum Engineers (SPE) and the American Association of Petroleum Geologists (AAPG) to implement common definitions; however, their efforts have been only partially successful. This paper will discuss reserves definitions and methodology, and the influence these factors have on all phases of a hydrocarbon development project. It will stress the economic value of realistic, consistent reserves definitions.