What are '3P Oil Reserves'

3P oil reserves are the total amount of reserves that a company estimates having access to, calculated as the sum of all proved and unproved reserves. The oil industry breaks unproved reserves into two segments: those based on geological and engineering estimates from established sources (probable) and those that are less likely to be extracted due to financial or technical difficulties (possible). Therefore, 3P refers to proved plus probable plus possible reserves.

BREAKING DOWN '3P Oil Reserves'

The 3P estimate is a rosy estimate of what might be pumped out of a well by an oil company. The three different categories of reserves also have different production probabilities assigned. For example, the oil industry gives proved reserves a 90% certainty of being produced (P90). They give probable reserves a 50% certainty (P50), and possible reserves a 10% certainty (P10) of actually being produced.

Another way to think about the concept of different reserve categories is to use a fishing analogy where proved reserves (1P) are the equivalent of having caught and landed a fish. It is certain and in hand. Probable reserves (2P) are the equivalent of having a fish on the line. The fish is technically caught, but is not yet on land and may still come off the line and get away. Possible reserves (3P) are a bit like saying, "there are fish in this river somewhere." These reserves exist, but it is far from certain that an oil company will ever fully discover, develop and produce them.

Energy companies update their investors on the amount of oil and natural gas reserves they have access to through an annual reserve update. This update typically includes proved, probable and possible reserves, and is similar to an inventory report that a retailer might provide to investors.

Independent Consultant Resource Assessment

Several consulting firms provide oil companies with independent assessments of their oil reserves. These audits are also beneficial to investors who want the assurance that a company has the reserves they claim. One such firm is DeGolyer and MacNaughton, another is Miller Lents, who says they have served the oil and gas industry with trusted upstream insights and reservoir evaluation since 1948.

Investors in oil and gas companies, as well as independent oil projects, rely on consulting firms like these to provide accurate and independent assessments of a company's full reserve base, including 3P reserves. Crucial information includes things like estimations of reserves and resources to be recovered from discoveries and verification of hydrocarbon and mineral reserves and resources.

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