What are 3P Oil Reserves?
3P oil reserves encapsulate the total estimated oil reserves accessible to a company, combining all proven, probable, and possible reserves. The acronym 3P stands for proven, probable, and possible reserves.
The oil industry segments unproven reserves into two categories: those computed from geological and engineering estimates as probable reserves and those deemed less extractable due to financial or technical barriers, marked as possible reserves. Consequently, 3P reserves are an inclusive sum: proven plus probable plus possible reserves. This is contrasted with 2P reserves, which only account for proven and probable reserves.
Embrace the Optimistic 3P Oil Estimate
- 3P reserves account for all possible oil reserves a company can access, adding both proven and unproven categories together.
- Each type of reserve has a specific recovery probability, guiding the possibility of actual extraction.
- Often, companies present bright estimates of their 3P oil reserves, making independent consultant evaluations crucial for investor decision-making.
Breaking Down the 3P Oil Reserve Estimate
3P reserves represent an optimistic exploitation forecast for an oil well. Each reserve category carries distinct production probability marks. Proven reserves, marked as P90 reserves, suggest a 90% extraction certainty. Conversely, probable reserves or P50 have a 50% certainty level. Possible reserves, denoted as P10, hold a mere 10% probability of being produced.
To visualize reserve categories, imagine fishing: proven reserves are akin to catching and securing a fish. Probable reserves parallel hooking a fish, not yet reeled in fully. Possible reserves are the assumption that fish exist in a river but are not guaranteed catches. Companies routinely update investors annually on reserve statistics, akin to inventory reports in retail.
Independent Confirmations Foster Investor Trust
Consulting firms provide oil companies with independent reserve assessments, ensuring accuracy in publicly declared reserves. DeGolyer and MacNaughton, along with Miller and Lents, are fervent contributors to the oil sector, assuring stakeholders of their reserve claims. For investors, these services confirm a company’s exact reserve base, encompassing 3P reserves for a comprehensive understanding.
Shifts in Proven Reserves Reflect Industry Dynamics
The resource extraction industry is intricate, given that proven reserves reflect one of three reserve classifications. Frequently, significant changes occur between the statuses of reserves rather than solely from new discoveries. Investments should consider proven, probable, and possible reserves for an accurate assessment. As an example, a surge in a company’s proven reserves could arise if probable reserves convert to proven due to advancements in extraction technology.
Understanding a company’s full reserve spectrum, including 3P reserves, ensures investors get a complete perspective beyond merely the guaranteed reserves.
Related Terms: 2P reserves, P90, P50, P10, oil extraction technology, independent reserve assessment.
References
- U.S. Energy Information Administration. “U.S. Crude Oil, Natural Gas Proved Reserves, Year-end 2019”.
- U.S. Energy Information Administration. “Natural Gas: Featured Analysis & Projections”.
