RESERVE ESTIMATES - UNCERTAINTY AND ITS IMPLICATIONS

The determination of oil and gas reserve volumes and their values is s ubject both to uncertainty in the parameters used to make the estimate s and to the biases of individuals and organizations making and using the estimates. The traditional reserve classification, into Proved, Pr obable and Possible categories, although generally presented as determ inistic, implicitly recognizes the stochastic nature of the estimation process. Practical considerations of time and Limited knowledge of th e techniques tend to limit the use of stochastic methods. Even when de terministic methods are used, however, uncertainty remains and the imp lications of this uncertainty should be understood. Common reserve est imation methods aim for a high degree of certainty in proved reserves estimates, but the usual approach often yields a value of lower probab ility. A misunderstanding of the fundamental, and unavoidable, stochas tic nature of oil and gas reserve estimation may be trivial at the lev el of an individual property, but can have a significant impact when r eserves are aggregated. Uncertainty cannot be avoided; it can be manag ed, but only when it is recognized and understood.