Reserve Growth: Technological Progress, or Bad Reporting and Bad Arithmetic?

On a visit to Calgary this April, I noticed a weather forecast in the newspaper that mentioned “pop. 30 percent.” Having lived in Calgary from 1966 to 1972, I knew that it could snow at any time, and I was not surprised to see some snowflakes in the afternoon. Had nothing changed in the past twenty years? In fact, there has been a big change: the use of probability, as “pop” is the probability of precipitation.

While the concept of probability evidently has entered the daily life of Calgarians, it has yet to enter the assessments of oil and gas reserves in the provinces of the Western Canadian Sedimentary Basin.1 In Alberta, Saskatchewan and British Columbia, oil and gas reserves are reported by the operators as “proved reserves”, following U.S. practice. In the U.S., the oil industry currently is obliged by Security and Exchange Commission (SEC) rules to report only proved reserves, ignoring probable and possible reserves. Proved reserves are those deemed to be recoverable, based on current and foreseeable economic and technological conditions, with “reasonable certainty”. The practice of ignoring probable reserves inevitably has led to large upward revisions, which mistakenly are attributed to advances in technology, when in reality they are an artifact of flawed reporting.

Published in: Geopolitics of Energy, Issue 22 no 4, p7-16, April 1999
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