Saudi Arabia reserves, production
Looking just at the historical growth of original oil in place (OOIP) as shown in Fig. 2a ("Saudis refute claims of oil field production declines" by Maureen Lorenzetti, OGJ, Mar 8, 2004, p. 24) and widely reported reserves over the last several years, the numbers seem compatible to an interested outsider. Apparent recovery factors averaged just below 30% in the early 1980s, then jumped to 40% in the mid-1980s when Saudi Arabia added nearly 100 billion bbl of proved reserves and incurred criticism that they were "political." A 40% recovery factor is certainly not unreasonable.
There is some reason for concern at the post-2033 decline rate shown in Fig. 3, which is about 2%. By contrast, Prudhoe Bay has been declining at 10% since 1991. As a measure of the impact of decline rate assumed from 12 million bo/d, a 2% decline rate yields about 200 billion future bbl, and a 10% decline rate yields only 40 billion, or a five-fold difference. But also, of course, the years beyond 2033 are a long way in the future, and a lot of things can and will happen.
Arlie M. Skov
Consultant
Reserves certifications
Certifying reserves evaluators is the wrong solution to the credibility problems created by the Enron, Shell, and other recent scandals arising from faulty reserves reporting.
Ronald Harrell's well-intentioned proposal ("The time has come to certify reserves evaluators," OGJ, Mar. 15, 2004, p. 24) is wide of the mark. The industry does not need another level of certification for any of its professionals.
If certification were the answer, accountants would never commit fraud, physicians would never be sued for malpractice, and lawyers would never bring frivolous lawsuits. All of these professions are subject to considerably tighter professional standards and certifications than Harrell proposes.
Fraud will never be prevented by improved technical evaluations. Even capable, professionally trained, and licensed practitioners can, under certain circumstances, be tempted to cheat. Ethics courses are no panacea. Everyone knows the right answers. They just have to put them into action.
In the case of Shell, however, published reports have never doubted that the oil and gas volumes reported as "reserves" exist and will one day be produced. Apparently, Shell's problem was in the economics and accounting aspects of their reports, not in the physical. So improved technical skills wouldn't have helped.
Although all professionals are constantly striving to improve their technical evaluation skills, certification will necessarily focus on improving old approaches, while pointing away from the cutting edge technologies that are increasingly employed by reserves evaluators everywhere.
In my 40 years' experience in the business (not specifically in the reserves area, however), I was always amused by the differences between a geologist's and a petroleum engineer's assessment of a field's reserves. Being optimists by nature, geologists always want to record the maximum, in order to show how much oil they have discovered.
Facing the problems of actual production, however, engineers tend to minimize the amount of recoverable oil in a given reservoir. Both of these professions are merely responding to the reward system in place for their activities. Ultimately, both are right: early in the field's life, economics and production investments determine reserves; ultimately, the geologist's initial enthusiasm is shown to be correct.
The reserves recognition problem is a classic case of whether the glass is half full or half empty. As Bill Cosby's father once said, "The answer depends on whether you are pouring or drinking."
In my view, the biggest problems lie in the lack of understanding of the definitions of "reserves" and its many subcategories by most users of the data. Wall Street also over-emphasizes "reserves" as an important measure of a company's worth.
While it is good for a company to find more oil each year than it produces (i.e., have a reserves replacement ratio in excess of 100%), if reserves are correctly seen as inventories for future production, a rising production rate is a more important measure of the health of the company.
A low R/P ratio, seen as a negative by many investors, is actually a sign that the company is proficient at turning reserves (exploration investments) into production (cash), which is the ultimate goal of any business. There is no point in investing scarce exploration dollars years in advance of any possibility of generating actual production and income.
Thomas G. Burns
Ecoeconergy
Soda Springs, Calif.
