Posted October 9, 2014
Getting a handle on the size of America’s petroleum reserves and their energy potential can be a brain-bender because of the different ways resources are defined and the different ways resource estimates are used.
Example: A Bloomberg piece this week suggests there’s something afoot when producers talk about a resource estimate that’s different from the one they’re required to report to the U.S. Securities and Exchange Commission (SEC), as part of the agency’s oversight of the investing sector. Not at all. Two different concepts, two separate uses.
We’ll examine, but first note that the Bloomberg article actually rebuts itself:
Experienced investors know the difference between the two numbers, Scott Sheffield, chairman and CEO of Irving, Texas-based Pioneer, said in an interview. “Shareholders understand,” Sheffield said. “We’re owned 95 percent by institutions. Now the American public is going into the mutual funds, so they’re trusting what those institutions are doing in their homework.”
Understood here is that the resource estimate reported to the SEC is “proved reserves,” specifically defined by exploration, economics and time. The SEC:
Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
As the Bloomberg article notes, proved reserves are those that can produce within five years. In a number of cases exploration and production might take longer than that, which is one reason there might be discussion of an oil field’s potential.
That leads into discussion of another kind of resource: the unproved, yet technically recoverable resource. According to the U.S. Energy Information Administration (EIA), as of Jan. 1, 2012, the United States had proved crude oil reserves (as defined by the SEC) of 29 billion barrels. But EIA also lists another 209 billion barrels of unproved resources – adding up to 238 billion barrels of total technically recoverable resources. Unproven resources don’t meet the SEC definition, in some cases because the oil there isn’t economically recoverable under current circumstances.
Proved reserves “do not include all of the oil or gas in a region, but only those amounts that have been carefully confirmed by drilling or some other geophysical technique. Because proved reserves are, by definition, economically recoverable, the proportion of the oil in the ground that qualifies as proved reserves increases when prices are high, and decreases when prices are low. That is, even without new discoveries, oil that may be sub-economic at $70 per barrel might become economic at $100 per barrel and so the total proved reserves increase simply because price increases.”
Here’s another important factor. Unproved resources can move into the proved reserve category with the development of new technologies. This, in fact, is at the heart of America’s ongoing energy revolution. Because of the expansion of safe, advanced hydraulic fracturing and horizontal drilling in the past seven to 10 years, oil that was locked in shale and other tight-rock formations now is accessible at a cost that’s economical for producers. As a result there have been dramatic increases in domestic production – to the point where the U.S. now is poised to become the world’s leading producer of crude oil. EIA:
Early estimates tend to vary and shift significantly over time as new geological information is gained through additional drilling, as long-term productivity is clarified for existing wells, and as the productivity of new wells increases with technology improvements and better management practices.
Put another way: When America’s oil and natural gas companies are allowed to search for oil and gas they generally find it. Increased access to onshore and offshore areas is key to the discovery/exploration/production process.
The larger point is for everyone – Americans and policymakers – to keep their eyes on the ball. An energy revolution is under way in the United States because of vast resources, superior technology and private investment, all combining to create jobs, grow the economy and make America more energy secure. Needed is increased access, common-sense regulation and leadership to keep the revolution going strong.
ABOUT THE AUTHOR
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.