Lecture 1

Chapter 2
Lecture 1 Reserves
Classifications and
Definitions
Reserves Estimation Volumetric
Calculations for
Estimating Reserves
PET 412E: Petroleum and Natural Gas Economics

Dr. Emre Artun

Istanbul Technical University
2.1
 Lecture 1
Agenda

Reserves
Classifications and
Definitions

Volumetric
Calculations for
Estimating Reserves
1 Reserves Classifications and Definitions

2 Volumetric Calculations for Estimating Reserves

2.2
 Lecture 1
Reserves Classifications

McKelvey Box (Original form, US Geological Survey, 1980): Reserves

Classifications and
Definitions

Volumetric
Calculations for
Estimating Reserves

2.3
 Lecture 1
Reserves Classifications

Reserves
Classifications and
Slightly simplified representation (Ref.: J. Ross, 10-11 Definitions

December, 2009 UNFC Workshop , Almaty): Volumetric

Calculations for
Estimating Reserves

2.4
 Lecture 1
Reserves Classifications

Reserves
Classifications and
Even more simplified representation: Definitions

Volumetric
Calculations for
Estimating Reserves

2.5
 Lecture 1
Reserves Definitions
Since the introduction of the McKelvey Box, definitions have
been evolving over time.
Petroleum Resources Management System Reserves
Classifications and
SPE Oil and Gas Reserves Committee regularly works with Definitions

other professional organizations (AAPG, SEG, SPEE, WPC) to Volumetric

Calculations for
review and update the definitions since technology keeps Estimating Reserves

improving and industry is changing.

https://www.spe.org/en/industry/reserves/

Depending on the uncertainty of recovering them, 3 types of

reserves are defined and used for reporting:
Proved reserves: Can be recovered with
reasonable certainty under prevailing economic
conditions. The reasonable certainty test is not
quantified, but is left to the evaluator’s
professional judgment.
Probable reserves: Less certain than proved
but likely to be recovered.
Possible reserves: Less certain than probable
reserves. 2.6
 Lecture 1
Reserves Definitions

Range of potential reserves in a reservoir is determined as

a distribution and that distribution is sampled at defined
levels of cumulative probability (certainty) to become the Reserves
Classifications and
defined reserves values. Definitions

Volumetric
Although definitions and use vary, general use is the Calculations for
Estimating Reserves
following:

1P (Proven reserves):
90% cumulative probability
(certainty) level.
2P (Proven + Probable):
50% cumulative probability
(certainty) level.
3P (Proven + Probable +
Possible): 10% cumulative
probability (certainty) level.
2.7
 Lecture 1
Reserves Definitions

Immature vs mature (higher confidence) cases:

Reserves
Classifications and
Definitions

Volumetric
Calculations for
Estimating Reserves

With more wells drilled and more data gathered, the range of
uncertainty would decrease.

2.8
 Lecture 1
Reserves Definitions - Example:

For example, reserves may be defined as a result of fault Reserves

Classifications and
boundaries and number of wells drilled in different portions of Definitions

the reservoir: Volumetric

Calculations for
Estimating Reserves

North PROBABLE

East POSSIBLE
West

PROBABLE
Central PROVED

2.9
 Lecture 1
Volumetric Estimation

Two approaches:
Deterministic Approach Reserves
Classifications and
Definitions
Based on a fixed average value for each property that are the Volumetric
best estimates (typically values that are thought to be most Calculations for
Estimating Reserves
likely).

Probabilistic Approach
Based on a range of values (maximum/minimum and type of
distribution) for each property, taking into account uncertainty
in data.
Reserve estimates are not unique and can hardly be
considered deterministic. Probabilistic approach is more
realistic because of the uncertainties associated with reservoir
characteristics, especially at locations without enough number
of wells (without hard data).

2.10
 Lecture 1
Deterministic Approach

Simplest way: using average values of thickness, porosity,

saturation, and formation volume factor, and apply these to
the drainage area of the reservoir. Reserves
Classifications and
Better results can be obtained by using Ah (isopach), Ahφ Definitions

Volumetric
(isovol), or even AhφSo (hydrocarbon pore volume, Calculations for
Estimating Reserves
isoHCPV) maps.
In geologic settings and areas where the industry has
substantial experience and in mature fields (low degree of
uncertainty), deterministic estimates are usually
considered acceptable.
Sources of data:
Structure/isopach maps
Well logs
Core analyses
PVT properties of reservoir fluids (including formation
volume factor and solution gas/oil ratio)

2.11
 Lecture 1
STOIIP or OOIP

STOIIP: Stock-Tank-Oil-Initially-in-Place, STB

OOIP: Original-Oil-in-Place, STB
N Reserves
Vb × G × φ × (1 − Sw ) Classifications and
STOIIP = Definitions
Bo Volumetric
Calculations for
Vb = bulk volume of the reservoir rock, bbl (Vb =Ah for a Estimating Reserves

rectangular uniform-shape approximation)

N/G = net/gross ratio of formation thickness, fraction
φ = porosity, fraction
Sw = water saturation, fraction
Bo = oil formation volume factor, rbbl/STB
A = areal extent of the reservoir, sqft
h = reservoir gross thickness, ft

2.12
 Lecture 1
Thickness

An important parameter in volumetric estimating is the

Reserves
thickness of producing zone. Various types of thickness Classifications and
Definitions
definitions are used in the petroleum industry.
Volumetric
Calculations for
Estimating Reserves

Gross thickness
Stratigraphically defined
interval in which the reservoir
beds occur, including such
non-productive intervals as
may be interbedded between
the productive intervals.

2.13
 Lecture 1
Thickness

An important parameter in volumetric estimating is the

Reserves
thickness of producing zone. Various types of thickness Classifications and
Definitions
definitions are used in the petroleum industry.
Volumetric
Calculations for
Estimating Reserves

Net-pay thickness
Intervals in which porosity and
permeability are known or
supposed to be high enough
for the interval to be able to
produce oil or gas.

2.14
 Lecture 1
Thickness

An important parameter in volumetric estimating is the

Reserves
thickness of producing zone. Various types of thickness Classifications and
Definitions
definitions are used in the petroleum industry.
Volumetric
Calculations for
Estimating Reserves

Net-hydrocarbon-bearing
thickness
Intervals in which
hydrocarbons are present in
such saturation that the interval
may be expected to produce oil
or gas, if penetrated by a
properly completed well.

2.15
 Lecture 1
Water Saturation, Porosity, Oil Formation Volume Factor,
Area

Reserves
Classifications and
Water saturation and porosity: normally determined by Definitions

petrophysical analysis (core measurements) and Volumetric

Calculations for
interpretation of wireline logs. Estimating Reserves

Oil formation volume factor: measured by laboratory

experiments performed on samples of the reservoir oil,
plus its originally dissolved gas.
Area: The areal extent of reservoirs are defined with some
degree of uncertainty by evidence from drilled wells
combined with geophysical interpretation of seismic data.
For the purpose of reservoir volume calculations, two
types of maps are particularly desirable, isopach (isopay)
map or subsurface contour (isobath) map.

2.16
 Lecture 1
Area

Reserves
Classifications and
Isopach (isopay) map is used to show lines connecting points Definitions

of equal net formation thickness: Volumetric

Calculations for
Estimating Reserves

2.17
 Lecture 1
Area
Subsurface contour (isobath) map is used to show lines
connecting points of equal elevations from a datum plane,
therefore a map showing equal structure:
Reserves
Classifications and
Definitions

Volumetric
Calculations for
Estimating Reserves

This map is used in preparing the isopach (isopay) map

where there is an water-oil, gas-water, or gas-oil contact.
The contact line is the zero isopach line.
On paper maps, the volume used to be traditionally
obtained by planimetering the areas between the isopach
lines of the entire reservoir, which is now replaced with
digital mapping software. 2.18
 Lecture 1
Bulk Volume Determination

One of the convenient

methods for the Reserves
Classifications and
determination of bulk Definitions

volume is plotting the Volumetric

Calculations for
countour Area vs. Depth Estimating Reserves

(Top and Bottom), or vs.

Thickness.
The areas under the
curves can be calculated
to obtain the bulk volume.
It is suitable for all cases
where the geometry of the
reservoir is represented by
contour maps, either
structural or some form of
thickness map.

2.19
 Lecture 1
Bulk Volume Determination: Using Pyramidal and
Trapezoidal Equations
The use of volumetric equations is another method to
approximate the volume of a productive zone from
Reserves
planimeter readings. Classifications and
Definitions
Volume of a truncated-pyramid and volume of a trapezoid Volumetric
are the two commonly used equations because of their Calculations for
Estimating Reserves
similarity to anticlinal volumes.
If the area ratio of two successive isopach lines is less
than 0.5, then the volumetric shape can be approximated
with the equation for pyramid. Else, trapezoidal equation
should be used:
(
An+1 < 0.5, pyramidal equation
An ≥ 0.5, trapezoidal equation

where:
An = area enclosed by the lower isopach line (deeper),
acre or ft2
An+1 = area enclosed by the upper isopach line
(shallower), acre or ft2
2.20
 Lecture 1
Bulk Volume Determination: Using Pyramidal and
Trapezoidal Equations

Reserves
Volume of a pyramid: Classifications and
Definitions

Volumetric
h p Calculations for
∆Vb = (An + An+1 + An An+1 ) Estimating Reserves
3
Volume of a trapezoid:

h
∆Vb = (An + An+1 )
2
where:
∆Vb = bulk volume between two isopach lines, acre-ft or
ft3
An = area enclosed by the lower isopach line, acre or ft2
An+1 = area enclosed by the upper isopach line, acre or ft2
h = the interval between two isopach lines, ft

2.21
 Lecture 1
Original Oil in Place (STOIIP or OOIP)
From the bulk volume (gross oil-bearing rock volume),
determined by one of the methods discussed in the preceding
sections, the volume of hydrocarbon reserves can be
calculated. Reserves
Classifications and
Volumes Factors Example Definitions
Volume units
Volumetric
Gross HC rock volume (Vb)
100 Calculations for
Estimating Reserves
Net/gross ratio (N/G) 75%
75

Net HC rock volume

Porosity (φ) 20%

15
Pore volume HC saturation (1-Sw) 75%
HC-in-place
11.25
Stock-tank HC Shrinkage (1/B) 0.8
Initially-in-place 9

Stock-tank HC initially in place = Vb(N/G)(1-Sw)(1/B) 2.22

 Lecture 1
Recoverable Oil in Place (ROIP)
STOIIP is the quantity of oil originally present in the reservoir,
not all of which can be produced. How much can be produced,
depends on the production techniques applied and on the
reaction of the reservoir to these techniques. The fraction, or Reserves
Classifications and
percentage, of STOIIP that can eventually be produced is Definitions

called the recovery factor (RF , %): Volumetric

Calculations for
Estimating Reserves
ROIP: Recoverable-oil-in-place, STB

ROIP = STOIIP × RF
If we assume that all mobile oil (other than residual) in the
reservoir would be recovered:
N
Vb × G × φ × (1 − Sw − Sor )
ROIP =
Bo
Sor = residual oil saturation, fraction

The recovery factor can vary over a very large range. A factor
of 10% is probably the minimum that is economically
acceptable in most cases. In very favorable conditions, values
up to 75% may be reached (for water-drive reservoirs). 2.23
 Lecture 2

Chapter 2
Lecture 2 Decline Curve Analysis

Exponential Decline
Decline Curve Analysis Hyperbolic Decline

Harmonic Decline
PET 412E: Petroleum and Natural Gas Economics

Dr. Emre Artun

Istanbul Technical University
2.1
 Lecture 2
Agenda

Decline Curve Analysis

Exponential Decline
1 Decline Curve Analysis
Hyperbolic Decline

Harmonic Decline

2 Exponential Decline

3 Hyperbolic Decline

4 Harmonic Decline

2.2
 Lecture 2
Decline Curve Analysis

Decline Curve Analysis

Forecasting future production of a petroleum asset is the
Exponential Decline
most important part of economic analysis. Hyperbolic Decline
Two important parameters to be estimated are: Harmonic Decline
1 Remaining oil reserves
2 Remaining productive life
For this analysis, we need to define an independent
variable and another parameter as a dependent variable
which is a continuous function of the independent variable
Most common independent variables are:
1 Cumulative production
2 Time
The most popular dependent variable is: production rate

2.3
 Lecture 2
Decline Curve Analysis
Production under constant bottom-hole/well-head pressures
would continuously decline due to the decrease in reservoir
pressure and increase in water production → Recall the well Decline Curve Analysis
productivity relationship: q α (pR − pwf ). Exponential Decline

Hyperbolic Decline
Decline Curve Analysis
Harmonic Decline

Process of characterizing the decline in the production rate of a

well/field/group of wells, and using it for future forecasting of
production rate and cumulative production.
Assumption: factors that affected historical production will
continue in the future.
There are 3 factors that characterize a decline curve:
1 Initial production rate (rate the analysis starts at)
2 Curvature of the decline
3 Rate of decline
For a reliable analysis, production must be stabilized at a
constant choke size or constant BHP/WHP (conditions that
truly reflect the productivity are necessary).
2.4
 Lecture 2
Decline Curve Analysis
Production-time history of an hydrocarbon-producing well
would be highly variable due to reservoir and operations
related issues.
A well would be abandoned when the economic limit is Decline Curve Analysis

Exponential Decline
reached.
Hyperbolic Decline

Harmonic Decline
Production Rate

Prorated (allowable) production

Offset well completed

Edgewater drive becomes effective

Cleanout or stimulation

Well cannot make allowable

Well put on production

Edgewater breaks into well

abandoned due to economic limit

Well becomes watered out and

ECONOMIC LIMIT

Time
2.5
 Lecture 2
Decline Curve Analysis
By plotting the values of the continuously changing
dependent variable (rate) against the values of the
independent variable (time, cumulative production) and
graphically extrapolating the apparent trend until the Decline Curve Analysis

known end-point is reached, an estimate of the remaining Exponential Decline

reserves or remaining life can be obtained: Hyperbolic Decline

1 Rate-time Harmonic Decline
2 Rate-cumulative production
Rate of production as the dependent variable has the
advantage of always being readily available and accurately
recorded.
The end-point requirement is also easily met, since known
or estimated operating costs usually make it possible to
determine accurately the economic-limit rate and thus the
end-point of the curve
Economic Limit
The end-point of the production decline curves is commonly
called the economic limit. The economic limit rate is the
production rate that will just meet the direct operating expenses
of a well.
2.6
 Lecture 2
Decline Curve Analysis
In most cases the production declines at a decreasing
rate, that is: dq/dt decreases with time.
An ideal (typical) production decline curve:
Decline Curve Analysis

q Exponential Decline

Hyperbolic Decline

Harmonic Decline

Observed Predicted

Qp

t1 t2 Time

The area under the curve between times t1 and t2 is a

measure of the cumulative production during this time
period. 2.7
 Lecture 2
Classification of Decline Curves
There are 3 types of decline curves that have different types of
curvature characteristics:
1 Exponential (Constant-percentage) decline
Decline Curve Analysis
- q vs. Np : straight line Exponential Decline
- log(q) vs. t: straight line Hyperbolic Decline

2 Harmonic decline Harmonic Decline

- log(q) vs. Np : straight line

- 1/q vs. t: straight line
3 Hyperbolic decline
- q −b vs. t: straight line, where b is hyperbolic exponent

Effective Decline Rate

qt − qt+1
D0 =
qt

Continuous (Nominal) Decline Rate

dq/dt
D=
q
2.8
 Lecture 2
Classification of Decline Curves

Decline Curve Analysis

Exponential Decline

Hyperbolic Decline

Harmonic Decline

Arps, J.J. (1945). Analysis of decline curves. Trans. AIME.

160(1):228-247.

2.9
 Lecture 2
Effective Decline Rate
The effective decline rate per unit time, D 0 , is the drop in
production rate from qt to qt+1 over a period of time equal to
unity (1 month or 1 year) divided by the production rate at the
Decline Curve Analysis
beginning of the period:
Exponential Decline
q Hyperbolic Decline

Harmonic Decline

q1

q2

q3
q4
q5
qt qt+1

0 1 2 3 4 5 t

Effective Decline Rate

qt − qt+1
D0 =
qt
2.10
 Lecture 2
Nominal Decline Rate
The mathematical treatment of production decline curves is
greatly simplified if continuous (nominal) decline rate is
introduced. The nominal or continuous decline rate, D, is
defined as the negative slope of the curvature representing the Decline Curve Analysis

natural logarithm of the production rate, q, versus time, t: Exponential Decline

Hyperbolic Decline
q Harmonic Decline

dq

dt

Continuous (Nominal) Decline Rate

dq/dt
D=−
q 2.11
 Lecture 2
Exponential (Constant-Percentage Decline)
A plot of production rate versus time is generally curved, but
the plot of production rate versus cumulative production on
Cartesian coordinate paper sometimes indicates a straight line
trend: Decline Curve Analysis

Exponential Decline
q
Hyperbolic Decline
Observed Predicted

Harmonic Decline

qa

Npa Np

q = qi − αNp
where:
qi = production rate at the beginning of decline; Np =
cumulative production when rate equals q; α = slope of the
straight line; a = abandonment 2.12
 Lecture 2
Exponential (Constant-Percentage Decline)
Differentiating with respect to t:
dq dNp
= −α
dt dt Decline Curve Analysis

Since Exponential Decline

dNp dq/dt Hyperbolic Decline
q= and D = −
dt q Harmonic Decline

dq
= −αq → D = α
dt
Thus, if q versus Np is a straight line, the nominal decline rate
is equal to the slope of the straight line and is constant, hence
the name constant-percentage decline. After integrating:

q = qi e−Dt
Since the last equation is an exponential function, the
constant-percentage decline is usually referred to as
exponential decline.
t2 t2
qi − q
Z Z
Np = qdt = qi e−Dt dt → Np =
t1 t1 D
2.13
 Lecture 2
Summary: Exponential (Constant-Percentage Decline)

Exponential decline curves can be identified from the following

indicator plots: Decline Curve Analysis

q vs. Np : straight line Exponential Decline

Hyperbolic Decline
log(q) vs. t: straight line, with slope = D Harmonic Decline

Equations
Decline rate:
qi − q
D=
Np
Flow rate:
q = qi e−Dt
Cumulative production:
qi − q
Np =
D

2.14
 Lecture 2
Hyperbolic Decline
In the early years of reservoir engineering, it was observed
that exponential decline did not apply to all wells
In some cases, when loq(q) vs log(t) is plotted, a
Decline Curve Analysis
straight-line trend can be achieved when a shifting is
Exponential Decline
applied on the time scale (i.e., a positive or negative Hyperbolic Decline
constant is added to the time variable) Harmonic Decline

If the constant to apply for the shifting is c, then the plot would
be log(q) vs log(t + c). The equation of the straight line would
be:
1
log(q) = log(qi ) − [log(t + c) − log(c)]
b
Substituting the definition of nominal decline rate, D:
1 1
D = Di (1 + bDi t)−1 or = + bt
D Di
Therefore, D1 vs. t is plotted, straight line has a slope of b.
When we substitute the expression for constant c into the flow
rate equation above:
−1/b
q = qi (1 + bDi t) or q −b = qi−b (1 + bDi t)
2.15
 Lecture 2
Hyperbolic Decline
q −b versus t: a straight line with slope bDi qi−b and
intercept qi−b (at t=0).
A trial and error procedure could be followed to find the Decline Curve Analysis

correct b that would result in a straight line. Exponential Decline

Hyperbolic Decline

Harmonic Decline

q-b
b: too small
b: correct

b: too high

Time

2.16
 Lecture 2
Hyperbolic Decline-Curve Fitting in MS Excel (1/3)
Construct a spreadsheet for a given well or a field in the
following form including months, dates, historical and
forecasted production rates, cumulative recovery columns,
and qi , b, Di constants: Decline Curve Analysis

Write the hyperbolic decline equation in Excel formula Exponential Decline

format to calculate: Hyperbolic Decline

Harmonic Decline
flow rate, q as a function of the constants in the H column
and time, t, in the A column
cumulative recovery, Np , as a function of the constants in
the H column, and calculated flow rate q.

qi
b
Di

Change these constants while

observing the plot, change until the
blue line matches well with
observed data

Months to be
used in the
Date to be
used in the
Np = [qi/(1-b)Di][1-(q /qi)1-b]
calculation (t) plot
Actual historical
production rate -
q = qi(1 + bDit)-1/b
not to be
changed 2.17
 Lecture 2
Hyperbolic Decline-Curve Fitting in MS Excel (2/3)
Create a plot with two series:
Date vs. historical production rate (Column C) as a
scattered plot (markers with no line)
Date vs. forecasted production rate (Column D) as a line Decline Curve Analysis

plot without markers Exponential Decline

Hyperbolic Decline
NOTE: Make sure to have the scale of y-axis adjusted to
Harmonic Decline
see the decline trend clearly.
Change the constants while observing the plot
simultaneously, by changing until the blue line matches
well with observed data (use your engineering judgement
to accept the fit, focus on recent data and trends, ignore
outliers)
Actual
Well-1 Decline
qi = 1500 STB/d
b = 0.4
Di = 0.03 1/month

1000

100
Aug-13 Dec-14 May-16 Sep-17 Feb-19 Jun-20
2.18
 Lecture 2
Hyperbolic Decline-Curve Fitting in MS Excel (3/3)

Actual
Well-1 Decline
qi = 1500 STB/d Decline Curve Analysis
b = 0.4
Di = 0.03 1/month Exponential Decline

Hyperbolic Decline
1000 Harmonic Decline

100
Aug-13 Dec-14 May-16 Sep-17 Feb-19 Jun-20

Make sure to add the legend to identify which data is

actual, which data is decline forecast.
It’s a good practice to add a small text box that shows the
decline curve parameters (constants), that characterize
the decline: qi , b, and Di .

2.19
 Lecture 2
Summary: Hyperbolic Decline
Hyperbolic decline curve is the most general decline curve
and is applicable to almost any kind of production decline.
Most decline curves normally encountered are of the
hyperbolic type, with values for the exponent b between 0 Decline Curve Analysis

Exponential Decline
and 0.7, while the majority falls between 0 and 0.4.
Hyperbolic Decline

Equations Harmonic Decline

Decline rate:
"  1−b #
qi q
Di = 1−
(1 − b)Np qi

Flow rate:
q = qi (1 + bDi t)−1/b
Cumulative production:
"  1−b #
qi q
Np = 1−
(1 − b)Di qi

b: hyperbolic exponent (typically between 0 and 1) 2.20