How Do Experts Estimate The Size Of Oil And Gas Fields?

Turkmenistan is in the news this week after confirming that its South Yolotan-Osman natural-gas field is among the five biggest in the world. That assertion is based on a survey done by an independent British firm. Such estimates are of vital importance to energy-rich countries, as they cannot plan their national strategies without some idea of what resources they have. So how do surveyors determine how much wealth lies under their feet? And just how accurate are these estimations anyway?

Knowing you have crude oil or natural gas on your territory is one thing, calculating how big your reserves are is quite another.

Suppose that your geologists have used seismic imaging to pinpoint the likelihood of oil. That's a technique in which sound waves are fired into the ground, and the reflected waves allow the geologists to build a picture of the rock types underground. Oil will usually be found trapped in porous rock formations covered by impenetrable rocks.

So your seismic imaging has indicated promising geological conditions, and you drill an exploratory well. That produces oil, and you think you might have a real bonanza.

Manochehr Takin, an analyst with the Center for Global Energy Studies in London, cautions that this is where things start to get complicated.

"It is important to know what is the size of the oil and gas deposit you have discovered, because when you drill a well into the subsurface and find oil, it's as though you have this huge mass of [material, like a haystack,] and you have one needle, one long needle which goes down and gives you some information, but how do you know the size of this haystack?" Takin says.

The experts, according to Takin, have learned to interpret signs. For instance, how thick is the rock layer where the oil or gas was found? What is the pressure of the rising oil, at the bottom of the drill shaft, compared with at the top of the shaft? Does the flow decrease in the hours and days following the strike?

"All these things have to be interpreted, and then you can come up with estimates, and in the end you still only have one well, so other wells have to be drilled, so it is a complicated process, and one can be a long way off [in terms of accuracy]," Takin says.

"Sometimes the second and third wells do not show anything, although the first well has been promising, so you don't know the real extent of the oil and gas you have found."

Proven Reserves
The classic way to estimate the size of an oil or gas field is to create a circle of drills around the first well, and move these drills ever outwards into larger circles, until the extent of the field is gauged.

But accurately estimating the volume of the reservoir remains difficult. The resources are not lying neatly underground in a "lake," with defined boundaries, but instead follow the haphazard distribution of the rock formations.

The investment bank Simmonds and Company explains it this way: "Despite an oil-field technology revolution, estimating reserves is still akin to actuarial estimates of [the] remaining years in a human life -- a scientific guess."

In any event, in oilman's language the term "proven reserves" has a somewhat elastic meaning. Under the scale known as OOIP -- original oil in place -- proven reserves are those estimates with a 90 percent probability of being correct. And this category only applies to oil fields that are already producing.

The next category below that are estimates with an 80 percent probability of being correct, in cases where the field is known but not yet developed. And so on, downward, to the high-risk estimates that give only a 20 percent probability of being correct.

And difficulties of geology apart, politics can enter into the equation, too. Governments can unwittingly or knowingly exaggerate the extent of their resources. The bigger the resources, the more clout the nation has in the world, and the greater the chance of attracting investment. Take Mexico as an example.

"For many years its reserves were reported as being 50 to 60 billion barrels, and then they had auditors and others from outside, and they reduced that to 20 to 30 billion," Takin says. "And then, in order to attract investment they had to go to an even more restricted and definitive evaluation of reserves, [namely the standard] according to the United States Securities and Exchange Commission."

The result was that Mexico's reserves were in the end estimated at below 20 billion barrels -- only one-third of the Mexican government's original evaluation.

'Bad' Estimates
Another case where estimating appears to have gone badly wrong for some reason is at Ghawar, the world's largest oil field in Saudi Arabia. In 1975, international oil majors Exxon, Mobile, Chevron, and Texaco estimated that the 60-year-old field at most still had some 60 billion barrels to recover.

But almost 30 years later, after producing millions of barrels every day, Ghawar was estimated by the Saudi ARAMCO company as still containing 125 billion barrels. Who is right?

It's not that the oil giants don't make mistakes. Royal Dutch-Shell caused a stir in business circles in 2004 by reducing estimates of its proven oil reserves by a total of 20 percent, or nearly 4 billion barrels.

After the Shell revelation, many industry analysts questioned whether the overestimation of reserves is common among corporations and governments. This, of course, would mean that the world has less oil and natural gas than most people think.

Copyright (c) 2007. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.