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Oil reserves refer to portions of Oil In Place that are claimed to be recoverable under economic constraints. Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally as the amount of oil remaining is reduced. The recovery factor (RF) is the percentage of oil in place which is expected to be economically recoverable under a given set of conditions. Oil reserve estimates are ideally a measure of geological and economic Risk — of the Probability of oil existing and being producible under current economic conditions using current technology. The international authority for reserves definitions is generally the Society Of Petroleum Engineers . The U.S. Securities And Exchange Commission demands that oil companies with exchange listed stock adopt reserves accounting standards that are consistent with common industry practice. However these standards are based on historical production practices and are not always meaningful in dealing with deep-water and non-conventional oil fields that are becoming the source of more and more of the world's oil production. In addition, many of the world's largest oil-producing countries do not follow normal industry standards in estimating their oil reserves and do not publish any data which would allow their estimates to be verified. Proven, probable and possible reserves are the three most common categories of reserves used in the oil industry. They represent the probability that a reserve exists based on the geologic and engineering data and interpretation for a given location. Proven Reserves - defined as oil and gas "Reasonably Certain" to be producible using current technology at current prices, with current commercial terms and government consent, also known in the industry as 1P. Some industry specialists refer to this as P90, i.e., ideally having a 90% certainty of being produced. Proven reserves are further subdivided into "Proven Developed" (PD) and "Proven 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. PUD reserves require additional capital investment (drilling new wells, installing gas compression, etc.) to bring the oil and gas to the surface. Probable Reserves - defined as oil and gas "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial terms and government consent. Some Industry specialists refer to this as P50, i.e., ideally having a 50% certainty of being produced. This is also known in the industry as 2P or Proven plus probable. Possible Reserves - i.e., "having a chance of being developed under favourable circumstances". Some Industry specialists refer to this as P10, i.e., ideally having a 10% certainty of being produced in the foreseeable future. This is also known in the industry as 3P or Proven plus probable plus possible. PROVEN RESERVES IN ORDER Saudi Arabia With one-fourth of the world's proven oil reserves and some of its lowest production costs, Saudi Arabia produces over 4 gigabarrels of oil per year and is likely to remain the world's largest oil exporter for the foreseeable future.However, there are serious political risks involved in Saudi Arabian domination of the world oil market.In spite of recent increases in oil income, Saudi Arabia faces serious long-term challenges, including rates of unemployment of at least 13 percent, one of the world's fastest population growth rates (its population has tripled since 1980), and the need for political and economic reforms {Link without Title} . According to the Oil and Gas Journal, Saudi Arabia reports it has 262 gigabarrels of proven oil reserves, around one-fourth of proven, conventional world oil reserves. Although Saudi Arabia has around 80 oil and gas fields, more than half of its oil reserves are contained in only eight fields, and more than half its production comes from one field, the Ghawar Field . One challenge for the Saudis in maintaining or increasing production is that their existing fields sustain 5-12 percent annual decline rates, meaning that the country needs new capacity each year to compensate. The challenge is that the Ghawar field, found in 1948, has produced about half its total reserves, and is starting to run into production problems — notably, there are rumors that it is now producing more water than oil. Other Saudi fields are not only smaller, but more difficult to produce. Historically, when Saudi Arabia has run into production problems in other fields, it has simply shut them in and stepped up production in Ghawar, but if Ghawar runs into problems that no longer will be possible. Since Saudi Arabia is the world's largest producer of oil, their reserves are analyzed very closely and estimates vary on the amount of economically recoverable oil in Saudia Arabia. The raw data are not available to outside scrutiny. The International Energy Agency has predicted that Saudi oil output will double during the next two decades, projecting production of 7 gigabarrels per year in 2020, although this seems unlikely, if only for political reasons. A dissenting opinion regarding Saudi oil reserves came from Matthew Simmons who claimed in his 2004 book "Twilight in the Desert" that Saudi Arabia's oil production is declining, and that it will not be able to produce more than current levels — about 4 gigabarrels per year In addition to his belief that the Saudi fields have hit their peak, Simmons also argues that the Saudis may have irretrievably damaged their large oil fields by overpumping salt water into the fields in an effort to maintain the fields' pressure and thus make the oil easier to extract. Simmons interpretation of normal oilfield practice into a future crisis has been refuted by reservoir engineers at CERI.[http://www.ceri.ca/Publications/publications=geopolitics_of_energy.asp Since 1982 the Saudis have withheld their well data and any detailed data on their reserves, giving outside experts no way to verify the overall size of Saudi reserves and output. However, experts question the Saudi claim that recent declines in production are due to lack of demand (which no other producer has experienced), and pointed to the fact that the number of drilling rigs in Saudi Arabia has tripled with no comparable increase in production as similar to what happened in Texas when US production peaked and started to decline in the 1970s. This could mean that many Saudi oil wells have peaked and have begun the decline toward the end of their economic usefulness. Only with verifiable data can production and reserves increases or declines be demonstrated. According to the U.S. Energy Information Agency, Saudi oil production declined about 8% during 2006 to 8.75 million barrels per day in December. {Link without Title} Canada | ||||||||||||||||||
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