Possible Reserves (3P)

The 3P's of Reservoir Engineering: A Guide to Understanding Oil & Gas Reserves

In the world of oil and gas, understanding a company's reserves is crucial for investors and industry professionals. These reserves represent the company's potential future earnings and are categorized into three main types: Proved (1P), Probable (2P), and Possible (3P).

These categories, collectively known as the 3P, are used to estimate the amount of hydrocarbons that can be economically extracted from a reservoir. They are based on a combination of geological, engineering, and economic data, and the level of confidence in their estimation decreases with each category.

1. Proved Reserves (1P):

• Definition: This category represents the highest level of confidence in estimating the amount of hydrocarbons that can be recovered from a reservoir.
• Criteria: Proved reserves are those that have been demonstrated by drilling and production, or by other reliable evidence, to be recoverable in the future under existing economic and operating conditions.
• Significance: Companies use 1P reserves to plan their production and financial forecasts, and they are typically the most important factor in evaluating a company's profitability.

2. Probable Reserves (2P):

• Definition: This category represents a lower level of certainty than proved reserves but still indicates a reasonable expectation of recovery.
• Criteria: Probable reserves are those that are less certain than proved reserves but are considered to have a reasonable chance of being recovered.
• Significance: Probable reserves are considered to be a potential addition to a company's production and can be used to make long-term planning decisions.

3. Possible Reserves (3P):

• Definition: This category represents the lowest level of certainty in the 3P system and includes resources that may be recoverable under favorable future conditions.
• Criteria: Possible reserves are those that are more uncertain than probable reserves and have a lower chance of being recovered.
• Significance: Possible reserves are considered to be speculative and are not typically used for planning or financial reporting purposes. However, they can be important for evaluating the long-term potential of a reservoir.

Summary:

The 3P system provides a framework for understanding the certainty associated with different types of reserves. While proved reserves are the most reliable indicator of future production, probable and possible reserves offer insights into potential future growth and opportunities. By understanding the 3P system, investors and industry professionals can make more informed decisions about oil and gas companies and their potential for future success.

Important Note: It is crucial to remember that reserves estimates are always subject to change as new information becomes available. Therefore, it is important to rely on reliable sources and to understand the assumptions that underpin any reserve estimates.