HGS Reserves Course - Part 2

HGS Short Course - Part 2 of 3
Petroleum Reserves -- Avoiding Writedowns
Overview of Recommended Geological Practices

For nearly two years now there has been a lot of publicity regarding internal problems in energy companies, reserves write-down and concerns about the reliability of reserves disclosures. From the view of oil and gas companies and their investors, to Wall Street and the SEC, reserves are a major factor in the valuation of energy companies. From evaluating fields to buy, to determining whether or not to participate in a certain prospect; from estimating reserves of a new discovery to determining the proved reserves for a company, the bottom line is how much oil or gas can be placed on the books and produced with an acceptable return on investment.

There are many challenges in estimating reserves as well as reporting reserves. Our challenge relates to the fact that reserves determinations require a multidisciplinary approach including both geoscience and engineering. In December, HGS offered the first of a three-part series on “Petroleum Reserves – Avoiding Write-downs”. On January 20, 2005, HGS will offer the second part of this three-part series “The Recommended Geoscience Practices for Reserves Estimates” including methods and techniques. The starting point of most reserves estimates is the estimate of the size of the container and the volume of hydrocarbons in place. This second part of the three-part series will cover a variety of important recommended geoscience methods and techniques including:

• General Introduction – Reserves vs Resources
• Mapping surfaces – Structure maps, reservoir top and base of porosity
• Mapping of trapping faults (geology/geophysics)
• Down-dip limits in vertically stratified reservoir(s)
• Net sand and net pay
• Wedge zones (water, hydrocarbon and fault)
• Thickness determinations in deviated wells and dipping beds
• Net-to-gross ratios
• Porosity, permeability and saturation cut-offs
• Isochore maps (volume determinations)

The accuracy of reserves estimates are not only important for public companies and the SEC, financial analysts and banks, as well as investors all want the assurance of accurate reserves estimates. Whether someone wishes to invest in an exploratory prospect, purchase a producing field or determine the value of a company, the proved reserves is one of the single most important factors in the decision.