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85 comments on Dueling Editors

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Stuart Staniford on September 28, 2005 - 4:40am Permalink | Subthread | Parent | Comments top
We'd know by how much he's lying. Some (probably small) proportion of the reserve increase may really have been justified by improved recovery rates. But not 100%+ recovery rates!
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JD on September 28, 2005 - 4:52am Permalink | Subthread | Parent | Comments top
You seem to regard the 1979 OOIP estimates as carved in stone. They aren't. OOIP estimates can and do grow, just like reserves and recovery rates. 1979 was 25 years ago, and a lot of new technology has come online since then.
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Stuart Staniford on September 28, 2005 - 5:11am Permalink | Subthread | Parent | Comments top
The usual reason for reserve growth in the US is that the SEC requires reporting of reserves only of production that is possible from wells already drilled. As the field gets drilled out, there is necessarily substantial reserve growth. It's also possible for recovery fractions to grow due to better technology - but this factor is not that large. For example, here's Shell estimating that a variety of new technologies should be able to raise average recovery rates from 30% to 38%. OOIP should only change to the extent that pre-Saudi Aramco either misestimated the depth of the oil layer, the porosity of the rock or the extent of the fields. They'd poked holes all over those fields, meaning they'd have had cuttings of the rock all down the wells, and should have had excellent data on the rock layers and the oil column. The only field of any consequence that Saudi Aramco has discovered since 1979 is the Hawtah trend which is not that big and has very tight rocks. For Mr al-Naimi to be an honest man, pre-Saudi Aramco would have had to screw up by a factor of roughly three (unless we want to argue that recovery rates are going to be exceptionally high, but paradoxically, the remaining four fifths of the oil is hard to produce quickly). I eagerly await HO's explanation of how that kind of misestimation could have happened. Perhaps I'll learn something, but given my other 9 bullet points, I'm feeling like I'm on pretty solid ground.
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mw on September 28, 2005 - 1:18pm Permalink | Subthread | Parent | Comments top
Yes, indeed, I'm glad you raised that point. A whole lot of technology has been invented since oil peaked in the 70's in the US, and despite that technology being used where it makes sense here in North America, those peaked fields are still declining and new fields are not replacing what was once there.

US domestic oil creaks down year by year on a steady basis.

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JD on September 28, 2005 - 5:19am Permalink | Subthread | Parent | Comments top
It is a common claim that reservoir engineers and geologists are too optimistic and overestimate reserves. To evaluate this claim, a total of 493 reservoirs of light/medium oil, heavy oil, and gas were tracked over a period of more than 40 years, compiling Alberta Government records estimating ultimate recovery from 1961 to 2002. Recovery factors, well counts, actual production/injection data, and implementation of improved recovery schemes were also tracked to determine the reasons for reserves growth. In addition, the effect of price on growth of reserves was also examined.
 Contrary to the claim, the study actually shows remarkable reserves growth in light/medium oil pools discovered in the 1950s. It was found that ultimate recoveries from over 73% of the light/medium oil pools were underestimated and that growth above the initial recovery estimates occurred. The light/medium oil pools averaged a 97% growth in reserves. Because of the mature state of depletion and extensive production history, we can see that the cumulative oil and gas produced to date is often well above the original ultimate recovery forecasted by earlier conservative techniques. Similar growth trends were discovered for heavy oil and gas pools discovered prior to the 1980s. Heavy oil pools averaged a phenomenal 1083% growth in reserves while gas pools averaged 86%. Light/medium and heavy oil pools tend to grow both in recovery factor and volumes in place (OOIP). Gas pool reserves grow mainly by volumes in place (OGIP).
 Although reserves growth phenomena have been studied before,  this paper discusses the causes of reserves growth and shows the critical importance that improved recovery schemes, infill drilling information, and new technology have on this growth.

http://epiccs.com/Publications/CIM2004_272.pdf
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Stuart Staniford on September 28, 2005 - 5:40am Permalink | Subthread | Parent | Comments top
Yes, but the onshore Saudi fields were mainly discovered in the 1930s and 40s. The biggest ones had been in production for 30-40 years by 1979. Even the offshore stuff was mostly discovered in the 60s. You can see the discovery curves here.. Those OOIP estimates should have been pretty mature by 1979.

And your response to my other nine points?

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mw on September 28, 2005 - 1:20pm Permalink | Subthread | Parent | Comments top
Quite a few of those fields are in decline in Alberta.

You can have reserve growth driven by mistakes in calculation or new technology, but ultimately there is a finite limit to what can be extracted, at any price.

What part of that do you not understand?

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mw on September 28, 2005 - 1:25pm Permalink | Subthread | Parent | Comments top
In fact, those Alberta fields in decline have reserve lifespans often measuring less than a decade now. An entire sub-sector within the Canadian oil equity business was spawned to make these marginal resources "useful" on the stock market - witness the explosive rise in income trusts.

These trusts by and large are set up for one purpose - to extract the value out of the ground and pay an income stream to investors at fairly high rates... much higher than any mainstream oil and gas company involved in exploration and reserve building activity.

Why?

Because they expect the resource - the land - to ultimately be worthless. Eventually some of these trusts will pay their last dividend and close up, because there'll be nothing left to pump.

Slightly simplistic but gets to the heart of the matter.

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85 comments on Dueling Editors

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