Abstract
Probabilistic methods for reserves estimation, including uncertainty quantification and probabilistic aggregation, have gained widespread recognition in the oil and gas industry, since the first comprehensive guidelines were issued by the SPE in 2001. The probabilistic methods now used, as proposed in these guidelines, are similar to those also used in portfolio theory by the finance industry. A lot can be learned from the extensive experience with probabilistic methods and quantification of risk with measures like Value-at-Risk in portfolio theory. Especially, the guidelines issued by the Basel II Accord and since the recent financial crisis contain important lessons.
As a first step, we examine a fundamental question. Is the P90 reserves value an appropriate measure for quantifying the reserves downside? For the P90 value to be considered a good measure of the reserves downside, it needs to possess a number of basic characteristics involving P90 for each field and the probabilistically aggregated P90 value for the portfolio of fields. We define these characteristics and through examples will demonstrate that the P90 reserves estimate, in general, meets the requirements of a good measure of reserves downside. A possible uncertainty scenario, where some of these characteristics do not hold, is also given. An alternative measure of risk, specified as the average reserves over the confidence interval higher than P90, for quantifying reserves downside is presented.
In this paper, we will highlight the appropriateness and limits of using the P90 reserves estimate as a measure of the reserves downside. Understanding of the limitations posed by using the P90 value is vital in management of reserves risk.
