Undiscovered Oil and Gas Resources An Evaluation of the Department of the Interior's 1989 Assessment Procedures (1991) / Chapter Skim
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2 Limitations of Resource Assessments
2 Limitations of Resource Assessments
Pages 17-43
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From page 17... ...
Historically, estimates of the quantities of undiscovered oil and gas resources expected to exist within a region or the nation have been prepared for a variety of purposes using several different methods. To make effective use of such estimates, or to compare them with others, one must develop an understanding of how and why they were prepared; the extent and reliability of the data upon which they are based; the expertise of the assessors; the implications and limitations of the methodology used; and the nature of any geographic, economic, technologic, or time limitations and assumptions that may apply.
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From page 18... ...
Large corporations and financial institutions use resource estimates for long-term planning and analysis of investment options. Industry groups, like the American Gas Association, the American Petroleum Institute, and the Potential Gas Committee (PGC)
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From page 19... ...
Uncertainties about future well-head crude oil and natural gas prices and costs of exploration and development adversely affect all resource estimates. In short, uncertainties embodied in economic assumptions lead to significant uncertainties in estimates of economically recoverable resources and account for some of the large differences among estimators.
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From page 20... ...
However, the results of resource assessments are not often presented in a form that recognizes this concern with future production. Instead, the results commonly represent only a piece of the resource base.
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From page 21... ...
This complicates comparisons between alternative resource assessments and interpretation of individual assessments. Problems with maintaining strict boundaries include: · Relatively large quantities of natural gas from sources traditionally labelled "unconventional" are being produced in some areas.
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From page 22... ...
The area within the heavy frame on the upper right represents the undiscovered recoverable resources estimated in the 1989 DOI assessment. The hachured area within the heavy frame indicates undiscovered resources that are estimated to be economically recoverable.
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From page 23... ...
(The USGS/MMS assessment gives two estimates of undiscovered oil and gas reserves: one that includes resources recoverable with conventional technology and one that includes only the recoverable resources that yield an 8 percent real profit.) The problem with categorizing resources as technically or economically recoverable is that changing assumptions and changing times can drastically alter these criteria and hence the assessment results.
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From page 24... ...
The inclusion of oil and gas resources in the category of technically recoverable or technically unrecoverable is at best a snapshot in time, and, if history is to judge, one destined to be quickly rendered obsolete. The development of improved technology continually causes resources to move from the unrecoverable to the recoverable portion of the resource base.
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From page 25... ...
· In the absence of specific assumptions about exploration technology, does the assessment include all oil and gas fields containing economically recoverable resources regardless of whether the technology for finding them is economical or available? With the exception of a limited effort by the PGC, no assessors have attempted to identify the extent to which improved technology has caused resource estimates to increase over the years.
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From page 26... ...
Economic boundaries are introduced into resource assessments in one of three ways: (1) through quantitative analysis using explicit assumptions about resource prices, economic conditions, and available technology; (2)
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From page 27... ...
In addition, natural gas is excluded from the economically recoverable resource base, because no pipeline exists to transport the natural gas to markets in the lower 48 states. Assessment users should understand that once infrastructure is constructed, future assessments can change drastically.
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Because resource assessments can be only as good as the basic data that support them, it is essential that the data bases be as complete and accurate as possible. Unfortunately, this is not always the case.
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From page 29... ...
To circumvent this problem, assessors could use in-place values of resources and then apply appropriate recovery factors to estimate recoverable resources (Podruski et al., 19~. (Recovery factors express the percentage of in-place petroleum that can be brought to the surface.)
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From page 30... ...
However, predicting a field's true ultimate recovery requires an estimate of its future reserve "growth." Reserve growth can result from several factors: data reevaluation, extension drilling, new-pool exploration, infill drilling, enhanced-recovery techniques, better reservoir management, and changes in economic parameters. Some changes in reserve estimates may be negative rather than positive, but history has shown that, on average, reserve estimates grow with time.
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From page 31... ...
Estimating reserve growth with direct geologic and engineering methods is also possible. For example, the PGC employs such a direct method to estimate additional natural gas resources in discovered fields.
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From page 32... ...
This section discusses the methods used most extensively, particularly by government agencies, in making regional and national assessments in North America during the 1970s and 1980s. The Evolution of Government Assessments In response to perceived global energy concerns of the early 1970s, the USGS embarked on a program to analyze the nation's oil and gas resources.
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From page 33... ...
: :-:: 33 applied the widely recognized concept that petroleum pool or field sizes appear to be lognormally distributed in nature (Kaufman, 1965)
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From page 34... ...
By combining the exploratory well success probability, the conditional poolsize distribution, and a second distribution representing the number of prospects in the play, analysts produce a probability curve showing the total petroleum volume in the play. Subjective probability methods gained favor with assessors in part because they can be geology-based and because they provide a relatively simple means of reflecting uncertainties associated with the variables that describe pool size.
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The PRESTO program applies subjective probability to assess individual prospects which can then be summed into plays. The subjective probability methods described above can be shown to be statistically valid (Lee and Wang, 1983a,b)
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From page 36... ...
To create field-size distributions, analysts fit sizes of known oil and gas fields in each play to Pareto distributions. They "truncated" the distributions at the maximum field size and "shifted" their origins to a minimum field size; hence, the equation that describes the resulting curve is called a "Truncated Shifted Pareto" (TSP)
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From page 37... ...
· They may define precise physical boundary conditions tied implicitly to economic conditions: water depth limits, minimum economic field size, permeability limits, drilling depth limits, and so forth. Analysts have shown that assessments of economically recoverable oil and gas vary considerably with world oil price.
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From page 38... ...
It implies that an appropriate range of scenarios for a credible quantitative analysis of recoverable resources extends to predicting not only future price levels, but also how fast they are reached and how the service industry responds. On the other hand, the variability of service costs tends to damp out the sensitivity of recoverable resources volume to price, because changes in service costs eat up some of the potential profits or losses associated with higher or lower prices (Office of Technology Assessment, 1987~.
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From page 39... ...
For most prospects, there are several potential developers who, as a group, may represent an industry average in terms of drilling and service costs, required rate of return, exploration success rates, and so forth. However, it only requires one company to develop a prospect; the fact that all but one of the potential developers could not develop the prospect profitably (or would not proceed with development according to their investment decision rules)
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From page 40... ...
RESOURCE ASSESSMENTS AND ENERGY POLICY Resource assessments become tools for policy analysts when issues of resource scarcity, environmental sensitivity of potential resource-bearing lands, or shortfalls in resource production need to be addressed. For example:
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From page 41... ...
Because Policymakers commonly are unsophisticated about resource terminology, they are likely to interpret a sharp change in resource volumes as signalling a similar change in future production prospects. Policymakers may find it difficult to comprehend unless told very explicitly—that a so-called national assessment of oil and gas resources actually covers only a portion of the recoverable resource base: one that may have only a modest impact on future production.
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From page 42... ...
1977. Oil and Natural Gas Resources of Canada, 1976.
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From page 43... ...
1975. Geological Estimates of Undiscovered Recoverable Oil and Gas Resources in the United States.
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