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Is Reserve Growth a Non-issue??

Discuss research and forecasts regarding hydrocarbon depletion.

Is Reserve Growth a Non-issue??

Unread postby Taskforce_Unity » Tue 08 Nov 2005, 02:50:32

There is a lot of controversy regarding reserve growth (or technological improvements)

Jean Lahherrerre of ASPO has this to conclude on the matter:

"the conclusions from all these examples is that there is a real evolution of field reserves with time and the result from now to the end of production could be either positive or negative or close to zero. The problem is that it is only at the end of world oil production that the result will be known and many undeveloped fields risk never to be produced, like presently the 300 undeveloped discoveries in North Sea, which are in my database. My guess is that the result will be close to zero, most likely negative."

Momently the agencies propagating reserve growth are the oil companies and the USGS.

For the USGS the issue only popped up in 2000 when suddenly BAM reserve growth and technology was there:

link to image

As we can see from the chart above only in the 2000 USGS study reserve growth appeared.

There are many examples like Yibal, East Texas, Duri, Minas, Fields in the North Sea were no reserve growth occurs!

There are also some were it does.

So is reserve growth an issue or a NON-issue?
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Re: Is reserve growth a NON-issue??

Unread postby Antimatter » Tue 08 Nov 2005, 03:30:18

Here's an AAPG paper New Oil in Old Places that gives some examples of reserves growth.

Here is a long pdf from the Oxford Institute for Energy Studies from 1997 that looks at UK fields and determines the influence of tax and technology by breaking down fields into those that would not have been produced without changes in the tax regieme and new technologies. Not so much reserves growth related but still interesting. Their conclusion is that both tax and technology had a significant effect.



Oil production in the UK North Sea reached a peak of 2.63 million bld in 1985. As widely
predicted in the 1970s and early 1980s, output then declined sharpty, down to 1.8 million bld
in 1991. The surprising feature of subsequent production development was a resumption of
growth after the 1991 trough to a new peak of 2.49 million bid in 1995.
This large increase in oil output between 1991 and 1995 occurred despite a
considerable decline from fields where production had began before 1985 (The 1985 Group
of fields as they are labelled in this study). These fields which, of course, accounted for the
whole UK North Sea output of 2.63 million bld In 1985 produced only 1.08 million bld in the
second peak year of 1995, while The New Fields (those brought into operation after 1985)
contributed 1.42 million bld. More tellingly, The New Fields added almost 1 million bld to UK
North Sea oil production between the 1991 trough and the 1995 peak, making up for a
decline from the old fields of 0.31 million bld during this period, and adding a net increase of
0.67 million bld to the total.
Different factors may explain this resurgence of UK North Sea oil production.
Economists tend to focus on prices to explain changes in output, but the price of oil was not
much higher in the period 1991-5 than it was between 1985 and 1990 (ignoring the short
Gulf War episode). In fact, two other significant factors were at play throughout the 1980s
and early 1990s. The first was a relaxation of the petroleum fiscal regime in the UK, which
influenced the prospective rate of return on certain projects. The second was a vast array of
technological changes, which resulted in major cost reductions. Both sets of factors turned
hitherto unattractive projects into commercially viable ones.


http://www.oxfordenergy.org/pdfs/SP8.pdf
"Production of useful work is limited by the laws of thermodynamics, but the production of useless work seems to be unlimited."
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Re: Is reserve growth a NON-issue??

Unread postby GreyZone » Tue 08 Nov 2005, 11:06:25

One thing that bothers me is the underlying assumption of some people that technological breakthroughs from the 1980s or 1990s have not yet been applied to other existing fields. In fact, the opposite appears to be true - as soon as a new technological breakthrough is available it is applied. Further, each successive breakthrough becomes more expensive to apply. To make using those breakthroughs worthwhile, the real price in constant dollars has to go up but sometimes it doesn't go up enough or other factors drive profit down to where you don't have enough cash to do what you wanted to do anyway.

Right now even though prices are fairly high, projects are being cancelled instead of continued due to the higher price. What's happened is that everyone in the chain wants a bigger piece of the oil profit pie. What this is doing is squeezing the exploration teams with the consequence that they are cancelling almost 25% of marginal projects previously planned. What they are seeing is that in light of reduced margins, projects that they once thought would be profitable at $60 per barrel will now require between $100 and $150 to make a profit.
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Re: Is reserve growth a NON-issue??

Unread postby Tanada » Tue 08 Nov 2005, 19:42:50

GreyZone wrote:One thing that bothers me is the underlying assumption of some people that technological breakthroughs from the 1980s or 1990s have not yet been applied to other existing fields. In fact, the opposite appears to be true - as soon as a new technological breakthrough is available it is applied. Further, each successive breakthrough becomes more expensive to apply. To make using those breakthroughs worthwhile, the real price in constant dollars has to go up but sometimes it doesn't go up enough or other factors drive profit down to where you don't have enough cash to do what you wanted to do anyway.

Right now even though prices are fairly high, projects are being cancelled instead of continued due to the higher price. What's happened is that everyone in the chain wants a bigger piece of the oil profit pie. What this is doing is squeezing the exploration teams with the consequence that they are cancelling almost 25% of marginal projects previously planned. What they are seeing is that in light of reduced margins, projects that they once thought would be profitable at $60 per barrel will now require between $100 and $150 to make a profit.


I think this effect is also magnified by government agencies seeking to soothe the media and populus with tails of how technology will bring the price back down to low levels despite the fact that any competent model would show the effect you pointed out. Technology is applied accross the time spectrum, companies do not wait for a field to reach 75% depletion before they start using technology to boost production. A newly developed field starts with the best technology currently availible, not the stuff used in the 1960's. This means from what I can see the new fields work harder and faster, they go up faster and they come down the back side of the curve faster after reaching a higher peak than they would have with 1960's tech.
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Re: Is reserve growth a NON-issue??

Unread postby Flow » Wed 09 Nov 2005, 00:30:56

I don't see how reserve growth just happened in 2000? Proven reserves have been increasing since the early 1900 when it was thought that there was only a a few million barrels of oil the world.

Reserve growth can happen for any number of reasons, new discoveries, better technology, and most importantly, drilling wells that were previously discovered but not tapped. For example, between Saudi Arabia and Iraq alone, there are 50 large oil fields that have not been put into production. The oil in these fields are not included in their proven reserves but they exist. When they tap a new oil field, proven reserves go up.
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Re: Is reserve growth a NON-issue??

Unread postby DefiledEngine » Wed 09 Nov 2005, 00:42:14

I thought reserves was basically a bookeeping issue?
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Re: Is Reserve Growth a Non-issue??

Unread postby Keith_McClary » Wed 09 Nov 2005, 01:32:07

"reserve growth" means: the higher oil prices get, the more oil reserves we have.
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Re: Is Reserve Growth a Non-issue??

Unread postby Taskforce_Unity » Tue 15 Nov 2005, 21:10:26

Interview with Matthew Simmons about reserve growth:

Ten years ago I started doing analysis on depletion. All these oil field technologies that we helped save were being hyped as doing things they were not doing, but what they were doing was creating decline rates that we'd never been able to do before. Because you couldn't pull hydrocarbons out as fast before. In the last five years I have become one of the most famous speakers on depletion. It was in almost every talk I gave.

SS: Would you agree that these technologies do increase recovery rate?

MS: No.

SS: Not at all?

MS: Well, once in a great while.

SS: My understanding is that industry recovery rates have gone up from where they were twenty, thirty, years ago...

MS: There are always two or three exceptions: the Troll field in the North Sea, where they discovered, before they started producing, that underneath was a three foot layer of additional oil-bearing sands, they could get them both at the same time. That was one of the few cases. Sure, they could recover another billion and a half barrels of oil, but it doesn't have anything to do with running into decline, it's just managing the tail.

SS: But it has increased the recovery rate somewhat?

MS: No, not much. By 1997, 1998 I was basically having concern that we were heading for a bad landing and then came the oil price collapse, again.
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Thu 12 Jan 2006, 16:04:38

Reserve growth isn't just a function of price. Even as price has decreased through a given year, stated reserves or absolute known recoverables, as a whole, have a tendency to increase.

I would recommend an interesting methodolgy to calculate reserve growth through time as either the USGS methodology expressed in the "Enigma" paper by Emil Attanasai ( don't have it sitting here beside me to know where it was published ), or the "New Reserve Growth Model for the US Oil and Gas Fields" by Mahendra Verma ( Natural Resources Research, Vol 14 No. 2 June 2005 ) as places to start.

Dismissing it out of hand as just something that just happens in a place or two ignores the entire gamut of research done on the issue by the USGS prior to including it in their 2000 World Assessment.

And if Simmons hasn't heard of what happened in the California heavy oilfields with the introduction of new technology, and how it affected the recovery factor, as well as sustained production rates through time ( even post peak ) and thereby ultimate recovery, I cringe at what similar missteps may have been taken in the Saudi analysis he uses as a launching point for $200/Oil this winter, let alone any of his other conclusions.
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Re: Is Reserve Growth a Non-issue??

Unread postby rockdoc123 » Thu 12 Jan 2006, 18:42:57

I'm on board with Reservegrowthrulz. Reserves growth is a real thing, and it isn't always dependant on improvement in technology. This is especially true now because as an outside observer what you understand to be the reserves of a field as reported in SEC filings or press releases is almost invariably P1 or at best P1 and half P2 (you have to read the fine print in annual reports). As time goes on in a field companies become more confident in what can be produced (SEC directions based on SPE guidelines indicate 90% confidence of economic production for P1, 50% confidence for P2) so P2 reserves become P1 reserves and P3 reserves are moved up to P2 category through time. The larger a particular discovery is generally the large the observed reserves growth is to someone on the outside. Even from the perspective of the field operator things change through the field history that can result in recovery factors increasing or decreasing (Simmons is full of horsecrap when he says they invariably decrease...there is little evidence for this and on the contrary lots of evidence for increases)....as an example a water flood might suddenly start to be more effective, gas lift might be applied late in the field history etc. ....there are a lot of things that happen late in the life of fields...not all the technology new or old is used up front and it is often not necessarily the technology that is applied but rather how it is applied that makes the difference.
To say it doesn't happen is completely incorrect....if you want examples I can given them. One of my arguments is that it is completely within the realm of reason that the jump in Middle East reserves in the eighties was reserve growth simply because they moved from reporting proven to proven plus probable reserves. Certainly the historical reserve reports from IHS energy support that possibility.
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Thu 12 Jan 2006, 23:18:58

I've often wondered how people can dismiss reserve growth so easily, Lynch has a paper where he points out, in Campbells own tables showing his peak oil calculations, reserve growth, and if someone wants NOTHING to do with reserve growth, its Colin.

I also think its easy to confuse the crap outta all this as well, reporting SEC reserves, which I've done, with their probability estimate requirements, strikes me as insanely silly when the software engineers use to report reserves has a deterministic result, not a probability distribution. I haven't done SEC reserves since the mid-late 90's, but back then there wasn't even anything commonly available to calculate probability answers to well declines, just a number based on whatever economic criteria you threw at the software.

The confusion part for most is involved with reserves and resources and ultimates, let alone the probability requirements for proved, possible and probable, sometimes they are treated interchangably and the probabilities are completely ignored, other times people treat reserves=ultimate=resources and all kinds of other booboo's.
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Re: Is Reserve Growth a Non-issue??

Unread postby WebHubbleTelescope » Thu 12 Jan 2006, 23:49:29

ReserveGrowthRulz wrote:I've often wondered how people can dismiss reserve growth so easily, Lynch has a paper where he points out, in Campbells own tables showing his peak oil calculations, reserve growth, and if someone wants NOTHING to do with reserve growth, its Colin.


Lynch appears to be a major-league tool. I debunked one part of his paper here:
http://mobjectivist.blogspot.com/2006/0 ... again.html
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Fri 13 Jan 2006, 12:16:40

I don't know about anyone else, but it sure looks like you and Lynch are talking about two completely different things in different ways, and then graphing them differently, and then you are claiming victory because they are different.

The idea is quite reasonable and displayable....ultimates early in a fields life are different than ultimates at later points in time. The curves Lynch uses to display that might not agree with your view on how oilfields should work or the math or display technique involved, but the evidence of creeping ultimates is in Campbells work, the work the USGS has done, pieces Lynch has pointed out, go ask anyone who keeps a database of field ultimates over time about the differences from past to present, this is hardly rocket science. It tends to be noticed by any engineer who has done field reserves through time, its happened to me 10 years ago before I even knew what to CALL it.

The effect is widely known, easily tracked, and can hardly be debunked unless you can stuff found increases in ultimates back into a bottle somewhere and get rid of them, they simply ARE.
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Re: Is Reserve Growth a Non-issue??

Unread postby WebHubbleTelescope » Fri 13 Jan 2006, 21:26:54

ReserveGrowthRulz wrote:I don't know about anyone else, but it sure looks like you and Lynch are talking about two completely different things in different ways, and then graphing them differently, and then you are claiming victory because they are different.


What the ?? ... I only showed what Lynch showed. I am not graphing anything, just analyzing what Lynch decides to show. I believe he basically practices what Tufte calls "lying with graphs" http://pages.cpsc.ucalgary.ca/~saul/699 ... splay.html

Take a look at this graph of Lynch's concerning UK oil:
Image

This is what he says:
It also appears that the authors fall prey to statistical illusions. “Creaming curves” are published for some regions, where the fields, when ordered by size, appear to yield an asymptote which is interpreted as evidence of an approaching limit. But ordered by date of discovery, the asymptote is not as clear, as Figure 1 shows for the UK. No explanation is given as to why ordering by size is more appropriate than by date of discovery, and in fact, the asymptote appears to be nothing more than a statistical artifact that is, use of a large population, ordered by size, will frequently yield an exponential curve with an apparent asymptote. This is especially true of oil and gas exploration, where basins usually hold many more small fields than large ones.


That first line is a lie, as you order the data only to estimate the noise on the total and check to see how much more you would find with mainly small additions. For Lynch to say that anybody would do this sorting to prove an asymptote on future discoveries has to be practicing intellectual dishonesty. Lynch basically takes us for suckers, trying to deceive us into believing that since the other curve keeps climbing, there are more reserves down there, monetarily worth seeking out. Sorry, but that curve more likely will basically stop in its tracks and the oil company will move on to another field before they update the graph again.

This is such a sophisticated con that I have to admire its audacity. Lynch manages to do 2 sleight-of-hands in one. Casting aspersions into one set of curves as "bad" and then using his "good" curve to imply something that is not even remotely true. He probably has a lot of sheeple convinced on this one.
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Fri 13 Jan 2006, 22:43:49

Okay...I understand the beef now. However, that wasn't the information Lynch uses to greatest effect.....at least against Colin and whether or not reserve growth exists...its this..

http://www.gasresources.net/Lynch(Hubbert-Deffeyes).htm

Table 1 being on interest to me. I didn't pay alot of attention when I first found it to the specific field examples, any individual field can be used to prove any particular thing, on either side of the aisle.

My take on larger areas, which in a developed area have a better potential of following Hubbets bell curve, can go either way. Ohio was used by Hubbert in one of, if not THE original paper, as an example of his bell curve. The problem is, when the extraordinary pressures of the boycott/embargos in the 70's was applied to this "depleted" area, the curve reversed and Ohio climbed back to a large portion of its "old" peak production. Now...THAT is an area of considerable size and area, and without the influence of much in the way of majors or "real" money, it did a complete about face when subjected to the types of pressures the entire world is just entering with the reduction in excess capacity.

Grist for the mill....
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Re: Is Reserve Growth a Non-issue??

Unread postby WebHubbleTelescope » Fri 13 Jan 2006, 23:41:32

ReserveGrowthRulz wrote:....Ohio was used by Hubbert in one of, if not THE original paper, as an example of his bell curve. The problem is, when the extraordinary pressures of the boycott/embargos in the 70's was applied to this "depleted" area, the curve reversed and Ohio climbed back to a large portion of its "old" peak production.


For how long did it regain a peak?
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Fri 13 Jan 2006, 23:57:37

I'm guessing here because I don't have Hubberts paper or the graph sitting here in front of me, but I think the Ohio peak was somewhere in the 1920's? 1910's? The second peak came along in the late-70's, early 80's. If memory serves, it seems like the actual PEAK lasted as long as the first one, which is to say, not for long. Of course, the pressures involved which caused the second peak were gone within a few years. Hubberts example of the state ran from late-1800's to 1950's if I recall correctly. Is quite a nice bell shaped curve, which is why he used it as an example I imagine.

The reason I like this example so well is I was working in those fields and going to school when that boom was going on, and am more than a little familiar with some of the details. I didn't discover that Hubbert used it as an example in his original paper until I read it a year ago or so.
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Re: Is Reserve Growth a Non-issue??

Unread postby Pops » Thu 02 Mar 2006, 12:03:43

Forgive me for sticking my nose in this discussion since it is mostly over my head but I have a simpleton's question.

In my simplistic view of the whole peak theory, the production curve essentially follows the discovery curve with some time lag when political and economics are discounted - http://www.peakoil.com/sample/index.html

So for my uneducated mind, the discovery curve is the key to future production.

I have seen lots of models of the production curve but not one of the discovery curve that attempts to include reserve growth.

Is there such a model?
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Re: Is Reserve Growth a Non-issue??

Unread postby ReserveGrowthRulz » Thu 02 Mar 2006, 15:44:32

Pops wrote:So for my uneducated mind, the discovery curve is the key to future production.

I have seen lots of models of the production curve but not one of the discovery curve that attempts to include reserve growth.

Is there such a model?


If there is, I haven't seen it yet. To date, most reserve growth models or measures are graphs of individual fields or countries, showing initial discovery volumes and later ( in time ) estimates of the same thing, and measuring the change ( usually net positive ) of these estimates with time.

I don't think its impossible to do, you would just use your discovery curve only with "grown" volumes instead of initial discovery volumes. The arguement over how to "grow" the volumes itself would lead to a pretty wild discussion I'm betting. Doing it would have the effect of pumping up the volume of the discovered fields to some pretty large sizes.....and would make modern discovery sizes much, much closer to what supply/demand equations might require to keep things in balance.

You can understand how the powers that be might not be enthused about this idea of course, they A) deny reserve growth happens in the first place ( ignoring Hubberts own work on the issue ), B) they then attack its size when they fail on Point A, reducing it at all costs and then C) don't want to pump up their own discovery graphs for fear that the point they are trying to make will disappear, which is, that we don't discover near enough to meet demand. Its a very easy statement to make, and much more dramatic, when you only use 1/10th of the total ACTUAL discovered volume.
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Re: Is Reserve Growth a Non-issue??

Unread postby Pops » Thu 02 Mar 2006, 16:47:16

ReserveGrowthRulz wrote:The arguement over how to "grow" the volumes itself would lead to a pretty wild discussion I'm betting.


So I assume that (and the rest of the thread) means there isn’t agreement here as well.

In my little mind, that graph of discovery vs. production tells the story. If that graph can be proven wrong I would be more than happy for the extra time.


ReserveGrowthRulz wrote:Doing it would have the effect of pumping up the volume of the discovered fields to some pretty large sizes.....and would make modern discovery sizes much, much closer to what supply/demand equations might require to keep things in balance.


According to what you just said regarding the argument as to how to pump up the estimates I wonder how you came to that conclusion. I'm not aruging with the conclusion, just wondering

ReserveGrowthRulz wrote:You can understand how the powers that be might not be enthused
... when you only use 1/10th of the total ACTUAL discovered volume.


I do understand from reading some of your posts (not to mention your handle) where you stand on this subject, but I’m not sure exactly who TPTB are that you refer to. I guess what I’m asking is how do you come up with the figure of 10% of actual discoveries? Is that from 1900, 1950, 2000 or what?

Again, I’m not ragging on you - I’m more than willing to be convinced.
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