Per the story linked below about the huge fallout from Royal Dutch/Shell apparently playing around with these important numbers, I wondered how this potential “bookable” oil volume is is calculated?
According to quotes from an oil-company spokesman and an analyst in a Bloomberg story I saw today, the Securities and Exchange Commission’s rules for calculating reserves leave a lot of room for interpretation by companies. The New York Times, in a Ken Belson article that was published on the International Herald Tribune’s website on 12 March, blames “geological guesswork and corporate culture” as well as vague regulations. Hope that helps.
Disclosure: I own Shell stock.
In theory, the calculation is pretty simple.
First of all, you have to calculate the size of your reservoir. You have to know exciting stuff like net pay, spill points, and a good map. This is easy.
Next, you need to know the porosity od the reservoir (ie the amount of your reservoir which is oil/gas and not bits of rock. This, too is pretty simple.
Multiply one by the other, and you have the total amount of oil in the ground.
Then comes the difficult bit. How much can you pump out of the ground and still make a profit? This is where the problems (or in Shell’s case, lies) normally crop up. You have to pump up a sticky black goo from thousands of feet underground. And it’s not stored in a convenient giant void beneath the surface, it’s trapped between grains of sand.
With today’s technology, you can generally recover between 30-40% of what’s down there and still turn a profit. I think what Shell did was to assume that the 40% recovery was true for every field, everywhere (possibly factoring in that they would get $35 a barrel for ever).