October 4, 2010 / 9:10 AM / 9 years ago

Factbox: Oil reserves: declining - but how fast?

(Reuters) - Iraq’s declaration on Monday that its proven recoverable reserves have risen by 25 percent to 143 billion barrels is likely to revive debate on how much oil and gas the world really has left.

In July, Venezuela said it hoped soon to overtake Saudi Arabia as the country with the biggest oil reserves. Also in July, OPEC said its proven crude oil reserves rose 4 percent in 2009 to 1.06 trillion barrels, led by an increase in Venezuela.

BP estimates total global oil reserves are over 1.33 trillion barrels — equivalent to more than 40 years of consumption at current rates.

But many industry analysts have cast doubt on these figures, saying estimates may be inflated for a variety of reasons.

Following are some of the key issues involved:

CLASSIFICATION

* The Society of Petroleum Engineers has a committee for its Petroleum Resources Management System (PRMS), which has drawn up a set of standards to measure petroleum reserves to which companies are expected to conform. The PRMS divides recoverable oil and gas into proved (1P), proved and probable (2P) proved, probable and possible (3P). The “best estimate” is normally taken as 2P. The definitions are on an ascending scale of the “chance of commerciality.”

* On January 1, 2010, the U.S. Securities and Exchange Commission (SEC) updated its rules for oil and natural gas reserves reporting. The SEC rules largely follow the PRMS, but it bases its guidelines on “economic producibility” while the PRMS uses “commerciality” as a measure. The SEC’s classification of reserves also excludes oil from bitumen and other “non-traditional” resources. Companies must disclose proved reserves — oil that can be expected to be produced under current economic and technological conditions.

CORPORATE MISREPORTING

* The SEC move this year is the latest attempt to standardize oil and gas reserves reporting to try to help investors make reasonable assessments of the assets held by oil companies and their likely future production.

* In the past some oil companies have inflated estimates of their oil reserves or sought to massage their figures to impress shareholders or reassure them over their long-term prospects. In some parts of the world oil reserves may be taxed, encouraging companies to report lower figures. In the United States, oil companies can under some circumstances reduce tax to reflect depletion of oil reserves, which may also encourage under-reporting, analysts say.

* In 2004, Royal Dutch Shell, the world’s third largest oil company, slashed its proven oil and gas reserves by a fifth, or 4.47 billion barrels, prompting an investigation by the SEC and Britain’s Financial Services Authority (FSA) industry watchdog. It subsequently downgraded its reserves even further. Several top Shell executives lost their jobs in the wake of what the FSA called Shell’s “reserves scandal.” Shell agreed to pay a record 17 million pounds ($31 million) to the FSA for breaching market-abuse provisions and listing rules, and a civil penalty of $120 million to the SEC for violation of U.S. laws and SEC rules.

RESERVES ARE POLITICAL

* Members of the Organization of the Petroleum Exporting Countries face pressures which may affect their reporting of oil and gas reserves. Since the early 1980s, OPEC members have operated a system of production targets in an attempt to influence oil prices and their quotas have at times broadly reflected the size of their official reserves.

* The reserves of some countries, including Kuwait, the United Arab Emirates and Nigeria, have not changed for several years according to OPEC, a trend that for some observers makes the figures questionable.

* In January 2006, leading industry newsletter Petroleum Intelligence Weekly (PIW) said it had seen internal Kuwaiti records showing that Kuwait’s actual oil reserves, which were officially stated at around 99 billion barrels, were in fact much lower. PIW said it had seen evidence that Kuwait had only 24 billion barrels of fully proven reserves and another 24 billion barrels of non-proven reserves. If PIW’s figures were correct, it would have meant Kuwait was only sure of having around another nine years of production left at the output rate of the time — around 2.7 million barrels per day (bpd). Kuwaiti officials dismissed the PIW story.

* Several OPEC members have made substantial revisions to their reserves data over the last 25 years. In 1985, Kuwait announced an increase in its reported reserves to 90 billion barrels from 64 billion, despite saying nothing radical had changed in the oilfields. By 1989, Kuwait was saying it had around 97 billion barrels and these had grown to over 101 billion by the end of last year.

* In 1988, Abu Dhabi raised its reserves estimate to 92 billion barrels of reserves from 31 billion. Other countries have also raised their reserve estimates sharply: Iran raised its reserves to 93 billion barrels, up from 49 billion.

* Iraq moved its reserves estimate up to 100 billion barrels from 47 billion and on Oct 4 said they were 143 billion.

* Venezuela’s reserves jumped to 56 billion barrels from 25 billion including heavy oils not previously counted. The government of Venezuelan President Hugo Chavez said in July it hoped to end 2010 with the incorporation of another 105 billion barrels of proven oil reserves, giving it 316 billion barrels, making it “the country with the biggest certified crude reserves on the planet.”

* Saudi Arabia has reported official oil reserves of around 260 billion barrels for the last 20 years, despite pumping as much as 4 billion barrels a year from its maturing oilfields.

ALTERNATIVE ESTIMATES

* Analysts who support the “peak oil” supply theory, arguing world oil production has already passed its peak, say some OPEC countries may be reporting total oil found and producible to 2100, not the amount remaining in the ground. That could explain the PIW figures for Kuwait and the lack of change in Saudi reserves data (see above).

* If some countries, including some OPEC members, are in fact reporting total oil reserves discovered instead of oil still to be extracted, remaining global oil reserves could be much lower than official figures imply.

* BP’s latest annual Statistical Review of World Energy estimates the global Reserves-to-Production (R/P) ratio at almost 46 years, but the usefulness of this ratio has been questioned. The R/P equation — official total remaining reserves divided by current annual production — assumes dwindling oil reserves can all be extracted at the same rate as they were while oilfields were young. In fact, geologists say, production will decline slowly but over a much longer period.

Reporting by Dmitry Zhdannikov, Christopher Johnson and Chris Baldwin; editing by William Hardy

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