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.

  1. Probable Reserves

    Probable reserves are oil and gas resources determined to have ...
  2. Recoverable Reserves

    Recoverable reserves are oil and gas reserves that are economically ...
  3. Proved Reserves

    Proved reserves is a classification that denotes hydrocarbon ...
  4. Free Reserves

    Free reserves are the reserves a bank holds in excess of required ...
  5. Reservable Deposit

    A bank deposit subject to reserve requirements. Reserve requirements ...
  6. Net Borrowed Reserves

    A statistic released in weekly Federal Reserve data showing the ...
Related Articles
  1. Investing

    Do Countries With The Most Oil Reserves Actually Produce The Most Oil?

    Oil, aka Black Gold, is so precious that wars have erupted over it. So why is it that not all oil-rich nations are money-rich nations?
  2. Investing

    Natural Gas Industry: An Investment Guide

    Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms.
  3. Trading

    Emerging Market FX Currency Reserves Growing

    Are emerging markets preparing for a period of volatility?
  4. Insights

    A Primer On Reserve Currencies

    For nearly a century, the U.S. dollar has served as the world's premier reserve currency, but the future is uncertain.
  5. Investing

    Top 5 Oil-Producing Countries In 2011

    The recent spike in the price of oil has once again drawn our attention to the importance of a ready supply of oil to our modern economy.
  6. Trading

    10 Countries With The Biggest Forex Reserves

    Without adequate reserves, a nation's economy can grind to a halt. Here are the 10 nations with the biggest forex reserves.
  7. Investing

    E&P Operators Drop Natural Gas PUD's

    Several exploration and production companies have been forced to remove natural gas reserves from the proved category.
  8. Investing

    How does crude oil affect gas prices?

    Understand the origins of oil, how its price is determined and where its correlation with gas prices falls in the global economy.
  1. How does an oil and gas company measure and state their reserves?

    Understand how oil and gas companies estimate possible reserves and how different classifications are used to designate the ... Read Answer >>
  2. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  3. What economic indicators are important to consider when investing in the oil and ...

    Find out more about economic indicators and which ones are important when investing in companies in the oil and gas sector. Read Answer >>
  4. How must banks use the deposit multiplier when calculating their reserves?

    Explore the relationship between the deposit multiplier and the reserve requirement, and learn how this limits the extent ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center