DEFINITION of 'Proven Reserves'

After an oil exploration firm conducts a seismic survey on a piece of land, it obtains the proven and probable reserves in that area. Proven reserves are those which have an over 90% chance of being present. For example if a oil company believes that there is good chance of a successful drilling operation, they would classify those reserves as "proven."

BREAKING DOWN 'Proven Reserves'

If a reserve is considered to be proven, this does not guarantee a successful operation. After the total reserves of a piece of land are determined, the oil company makes a decision whether or not to pursue drilling. The initial seismic test is considered a sunk cost.


Total Reserves = Proven + Probable (unproven)


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