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Glossary of Technical Terms Used in Oil & Gas Processing: Reserves, Developed

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Reserves, Developed

Understanding "Reserves, Developed" in the Oil and Gas Industry

In the oil and gas industry, "reserves" refer to the estimated amount of hydrocarbons (oil, natural gas, and natural gas liquids) that are believed to be economically recoverable from a particular reservoir. Within this broad category, "developed reserves" hold a specific significance, denoting those reserves that are expected to be extracted using existing infrastructure and production methods.

Defining Developed Reserves:

Developed reserves represent the portion of a reservoir's total estimated hydrocarbon volume that is considered ready for production. This means that:

  • Existing wells are already in place: Developed reserves are associated with wells that are already drilled and operational.
  • Necessary infrastructure is available: The production infrastructure, such as pipelines, processing facilities, and storage tanks, is in place and ready to handle the extracted hydrocarbons.
  • Production is feasible and economical: The cost of extracting the developed reserves is expected to be lower than the potential revenue generated, making the recovery process financially viable.

Sub-categories of Developed Reserves:

  • Producing Reserves: This category includes reserves that are currently being extracted and flowing into production.
  • Non-Producing Reserves: These are developed reserves that are not currently producing but are readily available for production once the necessary conditions are met. This could include wells that are temporarily shut in for maintenance or due to market conditions.

Improved Recovery Reserves:

An important aspect of developed reserves is the concept of "improved recovery reserves." These are reserves that require enhanced recovery techniques, such as waterflooding, gas injection, or thermal recovery methods, to be extracted effectively. While these reserves may be included in the total developed reserves, they are considered "developed" only after the necessary equipment and infrastructure are installed, or when the cost of doing so is minimal.

The Importance of Developed Reserves:

The concept of developed reserves is crucial for oil and gas companies for several reasons:

  • Financial Planning: Developed reserves provide a clear picture of the company's near-term production potential and estimated revenue.
  • Investment Decisions: Companies use developed reserves as a key factor in determining future investments and development plans.
  • Production Forecasts: Developed reserves form the basis for accurate production forecasts, which are essential for planning and scheduling.
  • Market Valuation: The amount of developed reserves is a significant factor in determining the market valuation of an oil and gas company.

Key Considerations:

It is important to note that developed reserves are estimates based on current technology and market conditions. These estimates can change over time due to factors such as:

  • New discoveries and technological advancements: Discoveries of new reservoirs or improved extraction techniques can lead to increased developed reserve estimates.
  • Market fluctuations and changing regulations: Fluctuations in oil prices, government policies, and environmental regulations can impact the economic feasibility of extracting certain reserves.

In conclusion, "developed reserves" represent a key metric for oil and gas companies, providing a clear picture of their current and near-future production potential. Understanding the concept of developed reserves is essential for investors, analysts, and industry professionals to make informed decisions and evaluate the financial performance of oil and gas companies.

Test Your Knowledge

Quiz: Understanding Developed Reserves in Oil and Gas

Instructions: Choose the best answer for each question.

1. Which of the following statements BEST describes "developed reserves" in the oil and gas industry?

a) All the hydrocarbons estimated to be present in a reservoir. b) Reserves that are readily available for production using existing infrastructure. c) Reserves that have not yet been discovered or explored. d) Reserves that require new technology for extraction.

Answer

b) Reserves that are readily available for production using existing infrastructure.

2. Which of the following is NOT a characteristic of developed reserves?

a) Existing wells are in place. b) Infrastructure is in place to handle production. c) Extraction costs are expected to be higher than potential revenue. d) Production is deemed financially viable.

Answer

c) Extraction costs are expected to be higher than potential revenue.

3. Which of the following is a sub-category of developed reserves?

a) Undiscovered reserves b) Proven reserves c) Producing reserves d) Prospective reserves

Answer

c) Producing reserves

4. What are "improved recovery reserves"?

a) Reserves that can be extracted using conventional methods. b) Reserves that require enhanced recovery techniques for extraction. c) Reserves that have not yet been discovered. d) Reserves that are not economically viable to extract.

Answer

b) Reserves that require enhanced recovery techniques for extraction.

5. Why is the concept of developed reserves important for oil and gas companies?

a) To estimate future production and revenue. b) To determine the potential environmental impact of extraction. c) To assess the risks associated with new exploration projects. d) To calculate the total amount of hydrocarbons in a reservoir.

Answer

a) To estimate future production and revenue.

Exercise: Developed Reserves Scenario

Scenario:

An oil and gas company has identified a new oil field with estimated reserves of 100 million barrels. They have already drilled 5 wells and built necessary infrastructure to handle production. Currently, they are producing 5 million barrels per year from these wells. They are considering investing in enhanced recovery techniques to increase production from the remaining reserves.

Task:

  1. Identify the developed reserves in this scenario.
  2. Explain why the remaining reserves are not considered developed yet.
  3. Discuss the factors the company should consider before investing in improved recovery techniques.

Exercice Correction

1. Developed reserves:

The developed reserves in this scenario are the 5 million barrels per year that are currently being produced. This represents the portion of the reservoir that is readily available for extraction using existing infrastructure and wells.

2. Why the remaining reserves are not developed yet:

The remaining 95 million barrels are not considered developed yet because they require additional investments in enhanced recovery techniques. The company needs to determine the feasibility and cost-effectiveness of these techniques before classifying these reserves as developed.

3. Factors to consider before investing in improved recovery techniques:

  • Cost of implementation: The cost of installing and operating enhanced recovery equipment.
  • Production increase: The potential increase in production from using enhanced recovery methods.
  • Technical feasibility: Whether the specific reservoir and its geology are suitable for the proposed enhanced recovery techniques.
  • Economic viability: The cost of enhanced recovery compared to the potential revenue generated from increased production.
  • Market conditions: The current and projected oil price, as well as demand for oil.
  • Environmental impact: The potential environmental consequences of using enhanced recovery techniques.

Books

  • Petroleum Engineering Handbook: This comprehensive handbook covers various aspects of petroleum engineering, including reserve estimation and development.
  • The Economics of Petroleum: A Global Perspective by David G. Luhby: This book provides a deep dive into the financial and economic aspects of the oil and gas industry, including the significance of reserves and their impact on market valuation.
  • Reserves: Estimation and Evaluation by J. R. Fanchi: A detailed resource focusing on the methodologies and principles behind reserve estimation in the oil and gas industry.

Articles

  • "Reserves: The Key to Understanding the Oil and Gas Industry" by The Energy Forum: This article provides a clear and concise overview of different reserve categories, including developed reserves, and their importance in the industry.
  • "The Importance of Developed Reserves for Oil and Gas Companies" by Oil & Gas Investor: A focus on the practical implications of developed reserves for decision-making and investment strategies in the industry.
  • "Understanding Reserves and their Impact on Company Valuation" by Investopedia: A beginner-friendly article explaining the relationship between reserves, company valuation, and investment decisions.

Online Resources

  • Society of Petroleum Engineers (SPE): This organization offers numerous resources, including technical papers, industry publications, and courses related to reserve estimation and development.
  • U.S. Energy Information Administration (EIA): The EIA provides extensive data and analysis on oil and gas reserves, production, and market trends.
  • Canadian Association of Petroleum Producers (CAPP): CAPP offers detailed information on Canadian oil and gas reserves, production, and regulatory frameworks.

Search Tips

  • Use specific keywords: Combine "reserves" with terms like "developed," "oil and gas," "production," "estimation," "evaluation," "accounting," and "valuation."
  • Target industry publications: Include "Oil & Gas Investor," "SPE Journal," "Journal of Petroleum Technology," and "Energy Forum" in your search queries.
  • Focus on specific regions: Add country names or region-specific terms to refine your search (e.g., "reserves, developed, Canada," "reserves, developed, North Sea").
  • Explore case studies: Search for examples of how specific companies have utilized developed reserves for investment decisions or financial reporting.
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