A New Standard Method for Reserve Evaluation

Abstract

Given the importance of the reserves disclosures for investors and regulators, it is surprising that there has been very little focus on how the reserves data are prepared and reported by companies. Currently, reserves disclosures in the financial statements are not audited by independent public accountants, nor are they audited by any petroleum industry-designated independent evaluators. Performing the critical "reserves evaluator" function currently does not also require any recognised certification program or other mandatory industry-wide training requirements.Despite the highly technical nature of the reserves estimation process, both preparers and users of the reserves information know that reserves estimation is not an exact science. Estimates are based on limited data obtained from small regions, which are then extrapolated to the whole field. Reserves estimations are also based on expected production paths over long periods of time. Many alternative procedures are often available and widely used for making similar technical or economic determinations. These factors make reserves disclosures inherently subject to information quality problems. Estimates of proved reserve quantities may often be imprecise and change overtime as new information through new technologies becomes available. Accurate reserves data are extremely important to investors to value and assess the performance of energy companies, and are equally important to regulators and the public given the critical role of the energy sector in the economy. It is clear, then, that reserves data should be disclosed in a way that minimizes the credibility gap that afflicts the current disclosures. In this paper, new dynamic reserve estimation and reporting method will be introduced. This model is based on complex parameters of new ways of calculation of hydrocarbon initially in place, recovery factors, and net price plus % uncertainties associated with geology, recovery factors and prices.