Can You Have Probable Without Proved Reserves?

One of the unresolved issues in reserves evaluations is the continuing practice of assessing probable reserves for projects where no proved reserves have been claimed. The practice typically arises in the early delineation stage. The initial assessment of best estimate recoverable quantities (proved plus probable ("2P")) meets internal criteria sufficiently to justify development. While the project is potentially commercial, it may not meet all the criteria for disclosure of proved reserves under regulatory guidelines. In this paper, it is assumed that governing agency is the U.S. Securities and Exchange Commission (SEC). The issue is an interesting exercise in logic. Is probable a discrete entity or is it merely the incremental volume beyond proved in a 2P estimate? If no part of the accumulation meets the proved reserves criteria, then can the total 2P estimate be classified as probable reserves? The resolution may lie in more careful application of the full resource classification published by the Society of Petroleum Engineers (SPE) in 2000. The SPE recognized that ambiguity may exist between their definitions of uproven reserves and contingent resources. While reserves are accumulations that are recoverable under current conditions, this same distribution of volumes would be classified as contingent resources if technical and/or commercial risks prevent development commitment. The separation of risk and uncertainty in the assessment process is critical. One solution is to initially classify volumes associated with all new discoveries as contingent resources with its internal certainty categories (low/best/high estimates) until such time as the SEC proved reserves criteria are satisfied. As contingencies are removed, volumes would then be transferred to reserves subdivided into parallel certainty categories of proved (1P), proved plus probable (2P) and proved plus probable plus possible (3P). It may or may not be that simple; this paper critically examines associated issues with examples.