In this paper, we present methodology to quantify biases in reserves estimates using technical revisions (TRs) listed in reserves‐reconciliation reports filed with regulators in the US and Canada. Using this methodology, we assessed the reliability of reserves estimates for 34 companies filing in Canada and 32 companies filing in the US from 2007 to 2017.
Filers in both Canada and the US overestimated proved (1P) reserves, and US filers overestimated 1P reserves (51% positive TRs instead of 90%) more often than Canadian filers (72% positive TRs). Canadian filers underestimated proved‐plus‐probable (2P) reserves slightly (54% positive TRs instead of 50%). Considering the entire reserves distribution, Canadian filers were moderately overconfident (underestimated uncertainty) and slightly pessimistic. US filers, who report only 1P, were somewhere between the combination of extreme overconfidence and neutral directional bias (DB) and the combination of moderate overconfidence and extreme optimism.
Three groups of professionals can benefit from this study: estimators, who can use the methodology to track their TRs over time, calibrate them, and use this information to improve future estimation procedures; investors, who can analyze reported reserves estimates to compare volumes fairly; and regulators, to whom the paper provides quantitative methodology to suggest to filers to help them ensure compliance with appropriate criteria for 1P and 2P reserves and avoid significant reserves write‐downs later.