Amount of oil or gas in a reserve that can be produced. Generally reserves refer to the volume of technically and commercially recoverable hydrocarbons in an oil and/or gas reservoir (as opposed to the total volume of oil or gas in place, much of which may not be recoverable using current technology and in current market conditions). In general, reserves can be broken down into two main categories – proved reserves, and other reserves. Proved reserves are those reserves that geological and engineering data indicate with reasonable certainty to be recoverable today, or in the near future, with current technology and under current economic conditions.
According to the EIA reasonable certainty’ implies that there is a 90 percent probability that the natural gas actually recovered from those reserves will exceed the amount that is estimated beforehand to be recoverable. Proved reserves can be found as the ‘on the books’ reserves in operational and financial data of natural gas exploration and production companies, carrying with them economic implications for the company.
These companies have economic incentives to not overstate these ‘on the books’ estimations of their reserves as this classification carries with it a high degree of certainty. Other reserves are those that are less well known than proved reserves. This classification goes by many names. They may be called probable reserves, possible reserves, indicated reserves, or inferred reserves, to name just a few. Because the quantity and characteristics of these reserves are less well known, the extraction of this natural gas is not completely assured, although there is a relatively high probability that they will be recoverable.
Reserves need to be “booked” in order to go on the Company’s balance sheet. The term “reserves’ is not to be confused with “resources” which denotes oil and gas that may be present even though there is no specific data supporting the estimate, such as when conditions appear to be geologically favorable. Reserves form the key assets in an oil and gas company.
O&G reserves cannot be measured precisely. The estimation process involves subjective judgments & may be subject to revisions, changing regulations, guidelines, tax rules or a decline in the price of oil or gas may also have an effect on reserves & resources. Changes to gas and prices in fields subject to PSC may result in revised entitlements. Changes in perspectives on political risk may also result in R&R changes arising from PSC extension expectations and/or equity reductions.