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The Strategic Implications of Estimating Reserves

Gary Howorth
Art hur Anderscn Petroleum Services. London, UK

I ,/.1u/led ono/ysis the North sea oil o"d is EsJimo/ing undis
rewrves. "'hich besubjOCl quitediJJerem is becoming imponomjoc/or
1',lIh ClJl/Jpllll ies gQvemment /0 determinf: straregies.

of the Nonh Sca began in mid 1960s with first producti on
111 1967 West Sole licld. Sincc some 80 fields started produc-
110 1 Scven facil ities namcly Argyll. Blair, Crawford, Inncs, Linnhc
Pipcr havc already abandoned and 2000 it is estimatcd
fu rthe r 2(),,30 liclds wil1 abandoned.
l'!Ic UKCS has undcrgone rapid structural changc in rclatively shon timc
11111pllrcd with other areas orthe world. Some areas like Soulhem Gas basin
10 mature and while others likc Wesl ofShellands still
rrontier or embryonic.
using UKCS as examplc, this paper shows that quantif)ring ruturc
" I,'I'\'C!> which Ihcir very naturc are unccnain and subjecl 10 wide rangcs
I ludgement.
I I'IS paper also identifies how reserve estimates have changed over timc and
,tl\lu(!es thal cstimalion orundiscovcred rcscrves or"Yct 10 Find" is impor-
'.1,1 bOl h industry and govcrnmcnl in its stralegic managemcnt
1 'S rcscrvcs.
Andcrscn Pctrolcum Scrvi ces Group analysed somc 170-180 ficlds in
1992, as thc conlinuaJ updating of its UK Upstream Pctroleum
t '1I1,(t'ta<;c. Thc rrom this databasc has analysed rurthcr, and is
1'" _clllcd in this papcr. Data the Dcpartmcnt and lndustry's
,1( 11 ) Browll Book has uscd.
1111: (Iata cOIHai ned in this paper dcals with tOlal initial rccoverabIe rescrves
,11,11101 rcscrvcs in placc. We havc spli t ourdcfinition orrescrves into the rollow-

- Sclr
- Proven, and possibIc reservcs associated with

ficlds in production thosc which undcr devclor
_ Includes potcntially commercial ficlds and othcr dlll
_ Undiscovered rcscrvcs 10 Find"
Estimates rcserves havc changed dramatically sincc 1979 whcn total
rcserves werc 50 barrels oi l equivalenl compared wilh 74 bill l4ln
1992 (including oil, gas and view rcscrvcs which we
10 Find" YfF). Although rcscrvcs have moved calcgo,",
another as havc assessed scismic. appraised and
thc industry's pcrccption has increased as areas
analysed in dctail. question askcd is, how lon
this incrcase continue and howdoes decidc that the reserves platc:..
This will not answer thcsc questions directly provides some
into the potential probIems of doing 50.
secn in Figure 1, dril1ing has dccrcased ovcrthc last few ycar1i
timc high of 1990. This rcduction in dril1ing is sccn in both
exploration and appraisa\ although we anticipate that gas activity cou1d 11 tI
in next fcw ycars duc in!crcSI in gas markcting and the elc("t,k.'*
gcncration sector.
Ovcrall trcnd has incrcasingone, thcrcforc it is
10 incrcase in forecasl rcscrves.
Oi l Rcscrvcs
Vicws oil rcscrvcs gencrall y increascd throughoul years i'l
thc incrcasing trcnd in drilling. Those rcserves produccd or currentl y in
tion make somc 40% ofthe estimatcd UKCS reserves. evidcnce fl\lllll'"
Figures 1-3, suggcsts that reserves in UKCS rclH 111'1.
Gas Rcserves
Gas reserves also incrcascd sincc 1979 but unlikc oil, \0
platcaued. Notc that thc sizc ofYTF catcgory has doubI cd sil1ce 1979 bHIIIII_
incrcascd dramatically sincc 1988. 'N 111C casc of Ihc gus rcscrvcs il\ ,IIC
thosc currently produccd in productiOl1lnakc HP cstimalcd 51%
UKCS gas rcscrvcs comparcd witll 40% for 011.
Implicatio"s Resen'/;'s
"' 1

l\I6j 1\167 1969 1971 197! 15175 1911 191:1 1915 1917 1\119 19\11
_ Exp1ora1ion [:J Appraisal
Figure 1. Exploration Apprai sal Wells $puddcd

I f -'.
1914 19115 1917 1911 1W\1 19')0 19\11
- Produced

D:'JTobcprodu<.:ed - Di500veries C] YctloFind
Figure 2. Oil Rescrves CUn1Ulalive ProductiO!1
l' fOll1 graphs shown and thc lrcnd shown in Figurc 1, it wou[d
1/1:11 UK tOla[ gas rcscrvcs platcaucd. This is say
.[Iargc.: gas rcservcs as tllcy likely 10 [ast somc 20-30 yea rs. (dcpcndi ng
VI CW of
Y II" in t/IC rcprcscnls thc limi! of esti mulcs
Illc DTI 's BroWl1 Book. lhcir I1Ulure thesc cslimalcs unccr-
c'!c arnplc (11 Illc of [991 r,lI1ge of Ihc UKCS undis-
SJrotegic /mplicatio!lS Estimat;ng Rese,,'r'
'ed oil ranged from 540-3395 milJion tonnes(which converts
'hen these cstimates thcrc will like Ihe mor",
Southern North Sca (SNS) and Nonhcrn Nonh Sea (NNS). whereeXICI\
and geophysical studics havc out utilising the
titics of data In othcrs the of dala for thc't'
cs is always availabIe.
cserve sizes of discoveries and ficlds dcvelopcd have rcduced tilYl('
6) with the that grcatcr pcrccntagc of Ihc discoverics and YII
Icss economic than in prcvious Although some screening of rCSCI
as made high Icvel e.g. exclude rcservc sizcs less than sizc 1"
it is likely that funher rcscrves shown in the
stimatcs ofthe in the UKCS havc dramatic effcct (111
igures shown above and conclusioos drawn. Organis3tions will IHlv\,
pcrceptionsofthc in thc various areas. Cenainlywll clr
panies strong participants in they likcly have benervicw
TF than others.
(17.1%) 1III"t...uctia.o
figure 3. UK Oil
arC.IS in thc UKCS malurc and olhcrs like Wesl 1111'
.ryonic. arcas which embryonic wilh littl c infrastructurc, il i5 C(IIiY (11
:n:llise Ihc Industry struclurc, (i,e. ways ill which COI11 I)lI III" ,
ratc. lhc economics officlds etc,) bccause 110 rul cs and <lcvt: 11111
11 tl\e i5 10 enacle<l, Thcre is of :\ greatcr BIII,.I' I
in tl1CSC arcas.
n tllc Iikc IIIC SNS wllcrc IIIC indoslry i!l "\'I\,
Ipl cJt, " '! wrong 10 IIpply nllcs of tl\\l11, b 10 111 1; cSli n\ II IC I1QW Y' II 1,
1omic. C)CM1pl c tl1 C Or 111'" 011/ &(1' I1111)! ul\S\\iIAbIC \1\" 111
Sfr(lIegic Reserves
,. rl----------------------------------------------,


- ProoU(:eo:!
1914 1911}

r::;:;::] produced _
Figurc 4. UK Gas Rcscrves and Cumulative Production.
cxi sling infrastructure.
Wc nowconsidcrthc SNS as cxample ofhow regions cffcctthe

Soulhem North Sca
closer inspcction oflhe SNS region wc find thallhe SNS represenlS somc 50-
6O%0fthe 10lal UKCS gas reserves and it is Ihis which gives rise shapc
ofthc UKCS gas The curve be10w shows Ihose reserves classificd as yrF
IInd those reserves classificd as already production 10 developed
(OEV). poteoliall y commercial and other discovcries (DISC). '! is inleresl
1118 10 note though drilling in the SNS basin incrcascd in late 1980s
C$ll matcs of reserves havc rcmaincd conStant.
1 n SNS those reserves currently produced and those in produc-
1100, represcnt somc 61% of estimated rcscrvcs in SNS (Figurc 8).
y,'F only accounts some 20%.
As secn in Figurc 5, overall UKCS position has 5]% produccd
Il y produci ng with 36% in Ihc category.
Cost of Rcservcs
80 fa rwc havcconccntratcd rescrvc profi1es alone 10 our conclusions
1I!lho\l gh wc touchcd somc aspects Ofcosls. Ourdatabase shows that
Ihosc ficlds produclion, Ihe average unit fi eld COSIs(lolal
IInd gcnerall y around Thc unil field costs Ihose
nclds 10 dcveloped in thc fi vc ycars wi11 lowcr averagc those
Slrotegic Estimating Resen,es
Figure 5. UK Gas Reserves.
\0\ 200
.1" Produclion UfI(\cr {)cvelopment
6. Distribution of lnitial Reserve Size Field Slalus.
fled tl\cm. rcason forthis is thcsc ficlds cxICI\
Cx1Slil\8 i"frastruclurc .
. \1108C \0 dcvcloped in half thc
fOl'CClIst 10 risc. This is fortwo main rcasons; (i) thal rcservc sizcs
r 1IIId (ii) ficlds likc those thc (Eastcm Trough Projc( l)
(e.g. Mamock. Mungo, Scotcr, rcquirc
hough ofthc rises '" unit coslS will reduccd utilising
ructu rc. unless fundamentally diffcrcnl mcans dcvcloping thc rcScl'V{'
: found. costs likcly 10 risc making thcln 1\ I) Cli'
n rcgiOl)al basis Ul\i1 ficld COSIS nlso grcntly, For examplc i" 1111
fields whi cll wc cnlcgori scd IIS polcntinlly commcrcl" I.l \
10 dcvcloped il\ <lcCI.I(lc. 1\I\il fic: ld COSIS

J.) 11
\" CClllrnl NOI\II 8c{1 (CNS) <:0818

Strategic Implications Reserves


20 1




191' 1916 1917 1911 1919
" ..
Figure 7, UK SNS Rcserves.

Figure 8. SNS Reservcs.
thc pubIication of annual statistics reserves generatcs much
illtcrcst thc rcsults obtaincd vary widely. Somc includc vicw undis
covered rescrvcs as shown ourfigures and others do not. Some
conservat ivc. Thcre is also usually in the way that rcserves
Generall y profiles vicws rescrves pubIished thcmselvcs. without
kcy factors such as amoun! of drilling and forecasts of economic
viabi lity.
ESlimating rcscrvcs, espccially with those Ihat is difficult.
I'hcrc is a lways scicnlific judgement involvcd but lhis improvcs with
nHHurity of and dala collccled .
Slrategic 0/ Resen''''
is impacl eSlimali ng upon
tgement dccisions, becomes important. For examplc lel us
produclion ofproducing rcserves, Ihose 10 dcvcloped. and (11'1-
ies as shown in Figure 10, i.c. downward slopc. vicwoCYl1
ts exploilalion, e.g. case I orcasc 2. will slrong impact
) perators wish 10 follow in terms developing assets in " 01
8ple. should operators maintain infrastructure so that Ihey
lil the should follow some slralegy that manages dcclil1c'r
clf7S 191" ,971 ,910 1914 19t6 1911
r::J CostpcTOOc(OpcX) _ Oil pricc!lboe
Figure 9. Averagc Rcal Cost of Developmcnts
,,., ,." ,'"

,"" XIOl XIO]
C:::J Undor Dcvc.lopmcnt

Flaure 10. Poifl l!)le PI'OOtll.;tlOl\ " Mttltll'e
Strategic /mplicatiofI!J 0/ Est;nrating Reserves
Thus, il is lopic which will require atlention as regjons
and dccline.
The main poinls 10 drawn Ihis
Views imponant determinanl in eSlimaling tOlaJ
their unceJ1ain and wide in rangc. Organisalions
wi H differenl views.
There grcat regionaJ differences in Ihe UKCS.
Estimating will require attention as UKCS matures and will
imponant factor for management and govemmenl in dctermining
st ralcgies.
pubticalions Anhur Scrviccs arc bascd information and opi nions
which havc verifica1ion, No Tcprcsentation
\III'3rranty is givcn Anhur Andcl"Sen as the accuracy of complClcncss of [hc IInd
Qpll1io ns cOnlaincd '" such pubIica!ions. Anllur Andcrscn do for
.ccuracy sufficicncy !he or orinions or dircct. indiTccl or conse
querl1iat Joss or damagc su(fcred person as resuJl of relying such pubIications 111C
and opinions thcrcill.
CopYTi ghl alt pubIica!ions Andcrsen t>elroleum Scrvices bctongs 10 Anhur

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