Information about petroleum resource and classification

1. PETROLEUM RESOURCE AND
CLASSIFICATION
Lecture 8

2. • The classification of reserves and, hence, reserve estimates for crude oil,
are very difficult to develop.
• Why all oil-producing countries do not Subscribe to similar systems or
develop their own systems?
• Reporting data on oil production or oil reserves is either a technical or a
political act.
• The Society of Petroleum Engineers classify crude oil reserve to satisfy the
technical needs,
• Securities Exchange Commission (SEC) classify reserves to satisfy bankers
and shareholders and requires oil companies listed on the US stock market
to report only proved reserves
Classification of Reserves

3. • Petroleum is a resource; fossil fuel resource. A resource is the entire
commodity that exists in the sediments and strata.
• Reserves are those quantities of petroleum claimed to be
commercially recoverable by application of development projects to
known accumulations under defined conditions. Reserves must
satisfy four criteria:
1. They must be discovered through one or more exploratory wells
2. They must be recoverable using existing technology
3. They must be commercially viable
4. They must be remaining in the ground.
Classification of Reserves

4. • The estimation of crude oil reserves is usually subdivided into two
components:
(1) the total reserves contained in the reservoir usually termed the resource or
original-oil-in place (OOIP).
(2) recoverable reserves — that portion of the resource, as of the date the
reserves are calculated, is economically efficient given market conditions and
rational use of modern extraction equipment and technologies.
• The United States had two main ways of announcing reserves:
(I) the standards developed by the Society of Petroleum Engineers (SPE)
(II) the standards employed by the Securities and Exchange Commission (SEC).
• Another system of standards, developed by Russia, has also become available
recently, and, because of Russia being an oil-exporting country, is also
noteworthy.
Classification of Reserves

5. • The standards developed by the Society of Petroleum Engineers take into
account not only the probability that hydrocarbons are physically present in a
given geological formation, but also the economic viability of recovering the
reserves.
I. Exploration and drilling costs,
II. Ongoing production costs,
III. Transportation costs,
IV. Taxes,
V. Prevailing prices for the products.
• Other factors that influence the economic viability of a given deposit.
Classification of Reserves
SPE Standards

6. Within these standards, reserves are classified
• proved,
• unproved,
• probable,
• possible,
• undiscovered —
Each with its own particular definition.
Classification of Reserves
SPE Standards

7. • Proved reserves are reserves of petroleum that are confirmed with a high
degree of certainty, found by drilling operations and are
• Recoverable by means of current technology
• Proven reserves have a reasonable certainty of being recoverable under
existing economic and political conditions, and using existing technology.
• Industry specialists refer to this as P90 (i.e. having a 90% certainty of being
produced).
• Proved reserves are also known in the industry as 1P.
• They may be updated by means of reservoir characteristics, such as
production data, pressure transient analysis, and reservoir modeling.
Classification of Reserves
Proved Reserves

8. • Probable reserves are those reserves of petroleum that are nearly
certain but about which a slight doubt exists.
• Probable reserves are based on median estimates, and claim a 50%
confidence level of recovery.
• Industry specialists refer to this as P50 (i.e. having a 50% certainty of
being produced),
• Also referred to in the industry as 2P (proved plus probable).
Classification of Reserves
Probable Reserves

9. • Possible reserves are those reserves of petroleum with an even greater
degree of uncertainty about recovery but about which there is some
information.
• Possible reserves have a less likely chance of being recovered than
probable reserves.
• This term is often used for reserves that are claimed to have at least a 10%
certainty of being produced (P10).
• Reasons for classifying reserves as possible include varying interpretations
of geology, reserves not producible at commercial rates, uncertainty due to
reserve infill, and projected reserves based on future recovery methods.
• This is referred to in the industry as 3P (proved plus probable plus
possible).
Classification of Reserves
Possible Reserves

10. • These reserves are based upon geological information about the
types of sediments where such resources are likely to occur and they
are considered to represent an educated guess.
Classification of Reserves
Potential Reserves
• The term inferred reserves is also commonly used in addition to, or in
place of, potential reserves.
• Inferred reserves are regarded as of a higher degree of accuracy than
potential reserves.
• The term is applied to those reserves that are estimated using an
improved understanding of reservoir frameworks.
Inferred Reserves

11. • More recently, the Society for Petroleum Engineers has developed a
resource classification system that moves away systems in which all
quantities of petroleum that are estimated to be initially-in-place are used.
(I) total petroleum- initially-in-place,
(II) discovered petroleum-initially-in-place, and
(III)undiscovered petroleum-initially-in-place.
The recoverable portions of petroleum are defined separately as
(1) reserves,
(2) contingent resources,
(3) prospective resources.
Classification of Reserves
SPE Standards

12. • The total petroleum initially in place is that quantity of petroleum that is
estimated to exist originally in naturally occurring accumulations.
• The total petroleum initially in place is, therefore, quantity of petroleum
that is estimated to be contained in known accumulations,
• plus those quantities already produced therefrom and those estimated
quantities in accumulations yet to be discovered.
• The total petroleum initially in place may be subdivided into discovered
petroleum initially in place and undiscovered petroleum initially in place,
Classification of Reserves
Total Petroleum- initially-in-place

13. • Estimated recoverable quantities from known accumulations that
do not fulfill the requirement of commerciality should be classified
as contingent resources.
• Contingent resources are those quantities of petroleum that are
estimated, on a given date, to be potentially recoverable from
known accumulations, but which are not currently considered as
commercially recoverable.
• Some ambiguity may exist between the definitions of contingent
resources and unproved reserves.
Classification of Reserves
Contingent Resources

14. • The estimated potentially recoverable portion of undiscovered
petroleum initially in place is classified as prospective resources.
• Those quantities of petroleum that are estimated, on a given date, to
be potentially recoverable from undiscovered accumulations.
• Undiscovered petroleum initially in place is that quantity of
petroleum that is estimated, on a given date, to be contained in
accumulations that are yet to be discovered.
Classification of Reserves
prospective resources

15. • The ultimate recoverable resource (URR) is the total quantity of oil that
will ever be produced, including the nearly 1 trillion barrels extracted to
date.
• Estimated ultimate recovery (EUR) is the quantity of petroleum that is
estimated, on a given date, to be potentially recoverable therefrom.
• Petroleum quantities classified as reserves, contingent resources or
prospective resources should not be aggregated with each other without
due consideration of the significant differences in the criteria associated
with their classification.
• In the case of reserves, and where appropriate, this range of uncertainty
can be reflected in estimates for proved reserves (IP), proved plus
probable reserves (2P) and proved plus probable plus possible reserves
(3P) scenarios.
• For other resource categories, the terms low estimate, best estimate,
and high estimate are recommended.
Classification of Reserves

16. • The standards set by the Securities and Exchange Commission (SEC) in
the United States differ in certain material respects from SPE
standards.
• Under SEC standards, the existence of the reserves must be
demonstrated with certainty before they may be classified as proved
reserves.
• Proved reserves are the only type of reserves that the Securities and
Exchange Commission allows oil companies to report to investors.
• Under the SEC standards, oil in reservoirs may not be classified as
proved reserves if they will be recovered after the expiration of a
current license period
Classification of Reserves
SEC Standards

17. Estimates of proved reserves do not include the following:
• Oil that may become available from known reservoirs but
is classified separately as indicated additional reserves
• Crude oil where the recovery subject to reasonable doubt
because of uncertainty as to geology, reservoir
characteristics, or economic factors
• Crude oil that may occur in undrilled prospects, and
• Crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shale, coal, gilsonite and other such
sources.
Classification of Reserves
SEC Standards

18. • Proved reserves are further subdivided into proved developed (PD)
and proved undeveloped (PUD).
• PD reserves are reserves that can be produced with existing wells and
perforations, or from additional reservoirs where minimal additional
investment (operating expense) is required.
• Proved undeveloped reserves are reserves that will be recovered
from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
Classification of Reserves
SEC Standards

19. The Russian classification of crude oil reserves differs significantly from SEC
standards and SPE standards with respect to the
• Manner
• Extent to which commercial factors are taken into account in
calculating reserves.
The system is based solely on the analysis of geological attributes.
• Explored reserves are represented by categories A, B, and Cl
• Preliminary estimated reserves are represented by category C2; potential
resources are represented by category C3
• Forecasted resources are represented by categories D1 and D2.
Classification of Reserves
Russian Standards
Finally, reserves of the combined A, B, and Cl classes in the Russian Standards equate with
proved, probable and much of the possible reserves (3P) under the traditional SPE Standards.

20. • The Society of Petroleum Engineers (SPE), World Petroleum Council
(WPC), American Association of Petroleum Geologists (AAPG), and
Society of Petroleum Evaluation Engineers (SPEE).
• This system incorporates the 1997 definitions for reserves, but adds
categories for contingent resources and prospective resources.
Miscellaneous Standards
Classification of Reserves

21. • The price of petroleum means the spot price of either West Texas
Intermediate crude oil as traded on the New York Mercantile
Exchange (NYMEX) for delivery in Cushing, Oklahoma.
• Brent crude as traded on the Intercontinental Exchange (ICE, into
which the International Petroleum Exchange has been incorporated)
for delivery at Sullom Voe.
• The price of a barrel of oil is highly dependent on both its grade,
determined by factors such as its specific gravity or API gravity and
sulfur content, as well as location.
Benchmark Crude Oils
Classification of Reserves

22. • A light crude oil is generally one with an API gravity of less than about
40. Brent crude oil has an API gravity of 38 to 39.
• Sweet crude oil has sulfur content less than 0.5% by weight and is
usually light crude oil.
• Approximately 160 different types of crude that are traded around
the world; the four primary benchmarks, of which these are priced
internationally are:
• Brent blend crude oil
• West Texas intermediate (WTI) crude oil
• Dubai crude oil
• The OPEC Basket crude oil.
Benchmark Crude Oils
Classification of Reserves

23. Brent blend crude oil
• The Brent crude oil blend is based on the prices of Brent crude which
is a light, sweet crude oil and is actually a combination of crude oil
from 15 different oil fields in the Brent and Ninian systems located in
the North Sea.
• The API gravity is 38.30,
• it contains about 0.37% by weight sulfur

24. West Texas intermediate (WTI) crude oil
• West Texas Intermediate crude oil is of very high quality and is
excellent for refining a larger portion of gasoline.
• Its API gravity is 39.6 degrees,
• It contains only about 0.24 percent of sulfur.

25. Dubai crude oil and The OPEC Basket crude oil.
A. Algeria's Saharan Blend,
B. Angola's Girassol, Ecuador's
Oriente,
C. Indonesia's Minas,
D. Iran's Iran Heavy, Iraq's Basra
Light,
E. Kuwait's Kuwait Export,
F. Libya's Es Sider,
G. Nigeria's Bonny Light,
H. Qatar's Qatar Marine,
I. Saudi Arabia's Arab Light,
J. the United Arab Emirates'
Murban,
K. Venezuela's BCF 17 crude oil.
• Dubai crude oil is a benchmark for Persian Gulf crudes, and is light yet sour
crude oil.
• The OPEC crude oil Basket blend is OPEC's benchmark and is a weighted
average of oil prices collected from various oil producing countries.
• As of June 15, 2005 the basket was changed to represent the oil produced
by OPEC members and is and is made up of 13 different regional oils,
namely:

26. THANK YOU

27. What can you make from one
barrel of OIL
??????

28. Researchers broke down a typical barrel of
domestic crude oil into what could be produced
from it. The average domestic crude oil has a
gravity of 32 degrees and weighs 7.21 pounds per
gallon.

30. The lighter materials in a barrel are used mainly
for paint thinners and dry-cleaning solvents, and
they can make nearly a quart of one of these
products. The miscellaneous fraction of what is
left still contain enough byproducts to be used in
medicinal oils, still gas road oil and plant
condensates.

31. THANK YOU