What is a Possible Reserves
Possible reserves are an estimate of the amount of oil or natural gas reserves that may be available for extraction in an area using existing equipment, and under existing conditions.
Possible reserves are one of the three primary recognized categories of The Society of Petroleum Engineers.
BREAKING DOWN Possible Reserves
Possible reserves falls under the category of unproved reserves of natural gas or petroleum. Reserve can be proven and unproven. However, unproved reserves carry more uncertainty. These categories help experts determine the fair market value (FMV) of a company’s reserves. FMV is the price that an item would sell for on the open market; determining this value helps a company plan and budget.
Operating conditions are taken into account when determining how to classify any given oil reserve. These include operational break-even price, regulatory and contractual approvals. Market price changes of the commodity, therefore, can have a large impact on the classification of reserves. Regulatory and contractual conditions may change and also affect the amount of reserves.
Because of the geological complexity surrounding natural resource exploration, oil reserve figures are more of an approximation than an exact estimate. Additional information on the geological makeup of a particular reserve causes estimates to be updated. Also, technological advances may increase the amount of oil or gas which is recoverable, as less of the natural resource will go to waste as efficiency increases.
To Drill or Not to Drill Reserve Classification
The Society of Petroleum Engineers recognizes three main categories of oil reserves based upon how likely an exploration and drilling company can extract the resource.
- Proved reserves are at least 90 percent likely to undergo commercial extraction.
- For probable reserves, the likelihood of being extracted are between 50 to 90 percent.
- Possible reserves have a likelihood of between 10 to 50 percent of being commercially extracted.
In the case that reserves can be recovered, but it would not be financially profitable to do so, the reserve is categorized as "technically recoverable," but would not fall under the category of proven reserve. Taken together, proved, probable and possible reserves are known as 3P reserves and include the combination of all three categories.
Examples of Possible Reserves
Included in the categorization of possible reserves are those which, based on geological interpretations, may fall beyond areas identified as probable reserves. Such reserves include those thought to be petroleum-bearing, but which may not be considered viable at commercial rates.
Also, some reserves located near proven areas will rate as possible. In this case, companies will use faulting and geological interpretation for the region in question. If the subject area is structurally lower than the proved area, it will receive the possible classification.