Recently, the SPE and WPC modified earlier definitions of reserves for the industry. Through much lobbying about improving the definitions more, the committees pretty much held on to the past.

Many hold the belief that for the first time the definitions allow for the use of probabilistic reserves though they do not require this methodology. Not true. Reserves estimates have always been probabilistic whether or not the definition recognized that fact. The weasel words chosen such as reasonably certain, with high confidence, more likely than not, and possible all lay tribute to the concept of probability. These words and phrases by design take the place of numerical probabilities so that estimators would not have to actually use the mathematics of probability and statistics. On the other hand, the use of the word "proved" suggests that to some, probability was not such a big deal. When remaining proved reserves can increase by factors of 10 or more over a few year period, we must admit that the uncertainties associated with reserve estimates are not so trivial after all.

One particularly sticky problem in the past was how to combine well reserves estimates to get reservoir reserves or field reserves—not that most people recognized this as a problem. People simply added them together as intuition would dictate. Incorrect. Ending up with less than proved reserves, by definition, constitutes a rare event. There has to be little chance that the field would be any smaller.

The sum of 5 rare events (proved reserves from 5 wells) is much more rare than any one of the contributing elements. So what started out as reasonably certain becomes extremely certain. This latter phrase no longer fits the definition of proved. With this error promulgating throughout districts, regions, companies, and the world, we end up with nonsensical numbers. Whatever methodology one uses, he must both start and end up with something about which he feels reasonable certain. Probabilistic methods provide easy solutions.

First, estimators must recognize that the Central Limit Theorem works overtime in our industry. It ensurs that the distribution of remaining reserves is always lognormal and includes provision for probable and possible reserves. Time to quit debating this issue. Second, having created a lognormal distribution for zones, wells, or whatever building block they use, they can combine them into reservoirs, fields, and company reserves. The mean of the sums is the sum of the means always, and most always, the variance of the sum is the sum of the variances. The effort need not require the labor of Monte Carlo Analyses. A spreadsheet analysis does-it quickly.

Choosing probabilistic methods gives us the possibility of reporting more proved reserves. The deterministic method biases the results to the low side. Using probabilities, a company's proved reserves could increase by 25% to 50%.

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