OIL (Theoretical background on reserves’ estimation)

To illustrate the current figures of oil reserves, conventions should be set first.
Reserves are known as being the amounts yet to produce from discoveries at a reference date.
Often, reserves’ calculations are too optimistic, not reliable, questionable and based on distorted estimates.
Some countries provide higher figures for the following reason :
  • To raise the quotas as the higher the reserves are the higher the quantity of exportable oil is.
  • To obtain bilateral loans as the quantity of projected reserves can be pledged as a guarantee to obtain financing.
In addition to biased estimates of reserves, there are also amounts of oil that are yet to be discovered but which are too expensive or too difficult to reach with the current technologies and that should be left in the ground  »all things being equal ». These quantities are called  »unconventional oil » (tar sands, oil shales, oil not recoverable with today’s technology).
We can set three important categories :
  • Cumulative production = what has been produced up till now.
  • Reserves of conventional oil excluding unconventional oil sources.
  • Yet to find = discoveries.
  • Cumulative production + Reserves + Yet to find = Ultimate .
The Ultimate is a constant quantity, it represents the total endowment of the earth in terms of crude oil.
Dr. King Hubbert’s theoretical model based on the probability distribution of oil production in the United States helps us to make an inference on the the world oil reserves. This model allows us to determine what would be the most suitable measure of  »oil reserves ». When some statistics show the wording  »proved oil reserves » they often refer to a P90 probability of 90% of finding a certain amount of giga barrels of oil in a determined region. We must object that this probability might change for the same amount of giga barrels from one country to another and that a uniform measurment system should be found. Hence, the most interesting measure to be applied to determine reserves is the sum of the medianes/averages of the oil production of each field. This means that appropriate calculation would be to apply the P50 probability of 50% of extracting a certain amount of oil from a certain oil field.