In July, engineers, technologists, regulators, investors and money men from around the world gathered at Washington’s L’Enfant Plaza Hotel for the first International Multidisciplinary Conference on Reserves and Resources, partly conducted under Chatham House rules of confidentiality. The aim was to set in motion a method of establishing a standardised methodology for assessing and classifying hydrocarbon reserves.

The two-day meeting was sponsored jointly by the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Engineers (SPE) with the World Petroleum Council (WPC). The WPC has spent two years updating its 1997 guidelines and 2000 SPE/WPC/ AAPG definitions.

The WPC says its standards are in common use, but admits this resource estimation is often a subjective judgement and that comparing reserve estimates is problematic. Don Juckett, who heads up the AAPG’s Washington bureau and helped bring the meeting about, admits that, when it comes to comparisons: “Sometimes it’s not just a case of comparing apples with pears but also with giraffes.”


In 2000, the US Geological Survey (USGS) produced its World Petroleum Survey in which it estimated that recoverable resources, including developed, undeveloped and undiscovered resources amounted to three trillion barrels. Its focus was, however, on ‘conventional’ resources.

“There is no sharp boundary between conventional resources, which can be defined relatively well by the older SEC rules.”

Dr Ronald R Charpentier, a geologist with the USGS, admits that the term ‘conventional’ is open to interpretation. “Coal bed methane (CBM) now comprises more than 10% of US reserves, but we still call it “unconventional”, he says. “That 10% seems pretty conventional to me in most respects.” He points out that the edges of a conventional field can be mapped by the gas / oil water contact, but adds: “You don’t have that sort of well-defined field with a nice clear edge to it with CBM, or with some of the tight gas sand fields with very low porosity. With some of these less conventional resources you might know, for example, that there is a lot of CBM gas in a particular area, but it is not in a discrete accumulation.”

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USGS has looked at CBM. “We don’t yet have an estimate [for it],” says Charpentier, “but because there is a lot of coal around the world and most of the coal has some gas in it, [CBM reserves] could be very high, larger than conventional natural gas resources.”

The Golden Mean of reservoir assessment, Rule 410, was introduced with the SEC regulations in 1976 entirely with fiduciary considerations in mind. Juckett says: “It was derived from a process that involved groups like the SPE, the AAPG and the technical professional community. At the time it was said to constitute various levels of certainty about what we call reserves and resources – the latter being a whole spectrum of resources that are within discovered fields but are not quite
ready for development and not well defined.”

“Then you get into that part of the spectrum that the USGS deals with: resources that are outside discovered fields, about which there is much greater uncertainty,” says Charpentier. “There is also a lot we still don’t understand about unconventional types of resources. And there is no sharp boundary between conventional resources, which can be defined relatively well by the older SEC rules, and what is less conventional.”


A move to redraft SEC definitions of what constitutes a reserve is underway. “We are re-examining the SEC definitions and trying to get them to move forward with 30 years of technological advances,” says Juckett. “That is not a criticism of the SEC. It is a tribute to an industry that has made previously inaccessible resources economic.

“The industry has recognised value, where once it was assumed to be non-existent.”

“For example, in 1976 CBM was very much a research curiosity. Today in the US, it comprises more than 10% of the reserve base and up to 7% of pipeline natural gas. However, CBM exists in a form that almost defies definition by the current SEC rules. It is difficult, because of the very nature of CBM, to say we understand what is in this block, the volume, the recovery factor that we can reach with a well or group of wells and to give all the information that makes it an asset under current SEC definitions. The advanced fracture technology being used in tight gas sands has posed an similar challenge for SEC rules.”

The industry has recognised value, where once it was assumed to be non-existent. “Consider the shale resources,” says Charpentier. “Thirty years ago, shale was never thought of as a reservoir rock.” Yet in the US projects such as the Bakken Shale and, more recently, the Barnett gas shale, coupled with strong prices, have reversed this view of shales.

Tar sands, says Juckett, are another outstanding example of an unconventional resource within SEC rules that has become a major source of supply. “The tar sands of Western Canada have catapulted Canada into second position globally after Saudi Arabia among reserve holders. What in the 1970s was considered a novelty is producing 1.5mb/d, half of Canadian output.”


It is not just the expanding nature of hydrocarbon resources and advances in technology exploiting previously uneconomic reserves that is undermining clear reserve definition and classification; the rise of government-owned or controlled oil and gas companies has contributed to this, in particular Saudi Aramco, Gazprom of Russia, CNPC of China, NIOC in Iran, PDVSA of Venezuela , Brazil’s Petrobras and Petronas of Malaysia.

“Russia is reworking the way it classifies reserves, which was formerly based largely on geological analysis.”

Russia is reworking the way it classifies reserves, which was formerly based largely on geological analysis – the commercial factors that underpin the SEC regulations were almost entirely lacking. But with these seven parastatals controlling one-third of world oil and gas reserves, politics is entering the calculation.

Governments may feel that their state hydrocarbon holdings are a matter of state security and should not be published accurately, while they might be tempted to make highly conservative reserve assessments in the knowledge that this would increase the price of oil on the global market. The same logic might be applied to assessing newly discovered properties.

Another source of bias enters the equation when a country such as Saudi Arabia, with the average well producing thousands of barrels a day, discounts a 500b/d well it considers a failure, a well that might make headlines in the US.

Meanwhile, the international oil companies (IOCs), who are all subject to the strict SEC Rule 410 reserve assessment definitions, each want to warm the hearts of their stockholders with a full disclosure of their reserves. Increasingly, IOCs are being hired by parastatal oil companies as service providers at agreed rates, not as partners in the development and operation of fields. As a result, they have no equity in these properties and can add nothing to their reserves.

Even if a new common methodology for the assessment and classification of reserves does emerge from the WPC initiative begun in Washington in July, there is no guarantee that the biggest players will actually use it, let alone publish the results. At best it may be deployed for internal calculations only, although this may be no bad thing.

The full rigour of reserve assessment may only be applied by parastatals when their current holdings have become depleted. It looks like apples, pears and giraffes will continue to be compared for the foreseeable future.