Oil and natural gas resource categories reflect varying degrees of certainty

The Energy Information Administration (EIA) has explained that crude oil and natural gas resources are the estimated oil and natural gas volumes that might be produced at some time in the future. The volumes of oil and natural gas that will ultimately be produced cannot be know ahead of time. Resource estimates change as extraction technologies improve, markets evolve and oil and natural gas are produced.

Oil and natural gas resources are classified into four categories:

• Remaining oil and gas in-place.
• Technically recoverable resources.
• Economically recoverable resources.
• Proved reserves.

According to the EIA, the uncertainty in estimated volumes declines across the resource categories based on the relative mix of facts and assumptions used to create the estimates. Oil and gas in-place estimates are based on fewer facts and more assumptions, while proved reserves are based mostly on facts and fewer assumptions.

Remaining oil and gas in-place

The volume of oil and natural gas within a formation before the start of production is the original oil and gas in-place. As oil and natural gas are produced, the volumes that remain trapped within the rocks are the remaining oil and gas in-place, which has the largest volume and is the most uncertain of the four resource categories.

Technically recoverable resources

The second largest volume resource category is technically recoverable resources, which includes all the oil and gas that can be produced based on current technology, industry practice, and geological knowledge.

As technology develops, as industry practices improves, and as the understanding of geology increases, the estimated volumes of technically recoverable resources also expand.

The geophysical characteristics of the rosk (e.g. resistance to fluid flow) and the physical properties of the hydrocarbons (e.g. viscosity) prevent oil and gas extraction technology from producing 100% of the original oil and gas in place.

Economically recoverable resources

According to the EIA, the portion of technically recoverable resources that can be profitably produced is called economically recoverable oil and gas resources. The volume of economically recoverable resources is determined by both oil and natural gas prices and by the capital and operating costs that would be incurred during production. As oil and gas prices increase or decrease, the volume of the economically recoverable resources increases of decreases, respectively.

Proved reserves

The most certain oil and gas resource category is proved reserves. Proved reserves are volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from know reservoirs under existing economic and operating conditions. Proved reserves generally increase when new production wells are drilled and decreasing when existing wells are produced. Like economically recoverable resources, proved reserves shrink or grow as prices and costs change. The US Securities and Exchange Commission regulates the reporting of company financial assets, including those proved oil and gas reserve assets reported by public oil and gas companies.

Adapted from a press release by Emma McAleavey.

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