Year (1) Pre-1920 1920_ TABLE III.-HISTORICAL RECORD OF PRODUCTION AND PROVED RESERVES; ALSO THE ULTIMATE RECOVERY AND ORIGINAL OIL-IN-PLACE BY YEAR OF DISCOVERY, TOTAL UNITED STATES 1921 471, 379 3, 176, 042 11, 836, 511 4, 198, 618 2,658, 354 3, 998, 867 4,043, 328 1926. 771, 137 1 Actual production except for latest year reported. See Appendix A for sources of production data used. 2 Figures published prior to 1945 included proved reserves of cycle-plant and lease condensate and are omitted since they are not on the same basis as the series beginning in 1945. 3 For all currently productive and depleted fields according to the year of discovery; based on proved reserves, cumulative production, and original oi-lin-place as estimated at Dec. 31, 1972. New pools of exploratory significance are assigned to the year of actual discovery; other pools are assigned to their fields' discovery year. ANALYSIS OF SALIENT ISSUES REGARDING THE ESTIMATION OF PROVED OIL AND GAS RESERVE FIGURES* PREFACE Consideration of oil and gas reserve figures has become an important aspect of congressional study of energy policy needs. Not everyone agrees on the definitions of "reserves"-as contrasted to "resources"-and confusion exists concerning methodologies of estimation and reporting. There has been increasing criticism, on technical and policy grounds, of reserve estimates released by industry and trade associations. Legislation has been introduced which would require full disclosure of industry "internal" reserve estimates. Other proposals call for the establishment of some agency in the Federal Government to prepare and publish standards, validated figures on oil and gas reserves as the basis for formulating national energy policy and related fuels programs. The study which appears on the following pages is designed to define and analyze a number of the salient issues associated with the above-stated problem within the appropriate historical perspective. The study utilizes current examples where oil and gas reserves are either at issue or are used as a basis for future projections. The last part of the study investigates the issue of "credibility" and whether "proved reserve" figures can be relief upon for the purposes intended. Finally, the authors suggest a number of alternative methods by which statistical data on reserves can be utilized for determining a sound national energy policy. This study was conducted by Energy Research, Inc. for the Congressional Research Service of the Library of Congress under CRS Contract No. 1036. II. THE ESTIMATION OF RESOURCES AND RESERVES It is apparent that, as time goes on, more is known about a reservoir, and estimates of oil and gas present can be made with greater precision and validity. When an untested area of marine rocks is to be initially explored, the only basis for estimation is the estimated volume of the marine rocks to producible depths; perhaps some surface geological information on the rocks and the structural features; and analogies with better known but apparently similar areas. As more is learned, the geologist can build a concept of the number, size, and distribution of reservoirs, porosities, permeabilities, content of gas and oil, nature of the crude, reservoir pressures, and the like. Fairly precise estimates can then be made of the oil and gas that are likely to be produced and over what time interval. The nature of reservoirs The characteristics of an oil and gas reservice, and the care with which it is produced, determine to a large extent the proportion of the oil and gas originally in the reservoir that can be recovered. The percentage of the oil may range from about 15 percent to about 75 percent. Around 35 percent is often used as a good average. The proportion of gas that can be recovered is much higher; an average figure may be about 80 percent. The rate of production is also important. If oil and gas are produced too rapidly from a reservoir, favored channels are developed in the reservoir toward the wells, the water below the oil may drive it too rapidly and unevenly, and the full yield of the reservoir is not attained. Some reservoirs are much more sensitive than others to rate of production in terms of amount of final recovery. In general about one-eighth of the producible oil in a reservoir may be withdrawn in a year. The corresponding figure for natural gas is about one-twelfth. *Extract of pp. II, 5-57, 71, 72, and 76-80, study by Energy Research, Inc., dated Production from a reservoir using its own energy-gas pressure, water pressure, or both-is primary production. Later it may be desirable to stimulate the drive by the injection of water and/or gas at appropriate points into the reservoir, resulting in secondary production. Unitization Normally the oil rights to a reservoir are owned by more than one individual or company and in most cases by many parties. It is evident from the foregoing that the management of production from a reservoir should embrace the whole reservoir, not just parts under individual ownership. In many cases, the various owners will get together and agree on a unit plan for operation of the serervoir. One of the owners generally is designated the operator. The costs and returns are divided on the basis of the proportional ownership agreed on in the unit plan. Most states today have enacted statutes that require unitization of a petroleum pool when proper conservation practices require it. Some of the older oil-producing states, such as Texas, encourage the voluntary unitization of fields, but do not authorize their regulatory agencies to require it.1 History of reserve estimates In 1915, Ralph Arnold, a geologist, prepared an estimate of crude oil reserves. Similar estimates were prepared by the U.S. Geological Survey in 1916 and 1919. For the year 1922, estimates of crude oil reserves were prepared jointly by the U.S. Geological Survey and the American Association of Petroleum Geologists. Estimates of crude reserves were prepared by the American Petroleum Institute (API) in 1925, and estimates for 1927 and 1933 were made by the Federal Oil Conservation Board. The petroleum reserves of the United States have been systematically reviewed and reported on an annual basis by industry technical groups since 1986. Initially, the estimations were made by the Committee on Petroleum Reserves of the American Petroleum Institute, and were limited to reserves of crude oil, including lease condensate. The Committee on Natural Gas Reserves was formed by the American Gas Association (AGA) in 1946 for the purpose of preparing annual estimates of reserves of natural gas and natural gas liquids. Since that date, the API and AGA committees have worked cooperatively, and now issue a combined annual report. Display of mineral resources The U.S. Geological Survey has devised a way of displaying estimates of mineral resources, including oil and gas estimates, that is remarkably simple, flexible, and useful. A roughly scaled rectangle represents the resource. The rectangle in its simplest form is divided, and scaled into two columns-the left one called Identified and the right one Undiscovered. The rectangle also is divided horizontally into a top part and bottom part, also scaled. The top row is labelled Recoverable and the bottom row Submarginal. This concept can be used by legislative bodies in consideration of policy formulation by legislation, as is explained in figure 1 on page 148. The vertical scale is feasibility of economic recovery, increasing upward. The horizontal scale indicates degree of certainty of the estimates, increasing to the left. Thus the upper left block of the rectangle will show identified recoveragle resources of the commodity depicted, such as oil or gas, to scale. The lower right block will show undiscovered submarginal resources. The user can draw a line across the diagram starting somewhere along the left vertical line, rising upward to the right until it intersects the top line. Everything above the line can be chosen by the group considering policy as representing resources to be included in policy-making; everything below the line can be excluded. The position and slope of the line can be debated by the group and drawn in any agreed-upon location. Footnotes on page 169. |